The dollar rose the most in two weeks against the yen after the Federal Reserve moved to lower only long-term borrowing costs and on concern the Bank of Japan may act to stem gains in the nation’s currency. The Dollar Index climbed to a seven-month high after the Federal Open Market Committee said there are “significant downside risks” to the economic outlook. The euro rallied versus the yen as Greece said it will accelerate budget cuts to keep emergency loans flowing. New Zealand’s dollar fell to the lowest in four months after data showed economic growth almost stalled. Australia’s dollar slid below parity with the greenback after a survey said China’s manufacturing may slow. “The reaction to the FOMC was risk off as the Fed was very pessimistic about the U.S. economy, and that’s pushed down riskier assets in general,” said Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc in Tokyo. “Dollar strength across the board pushed up dollar-yen as well.” The dollar climbed to 76.74 yen as of 1:22 p.m. in Tokyo from 76.46 yen yesterday, when it fell to 76.12, the least since Aug. 19. The U.S. currency rose to $1.3549 per euro from $1.3573. The 17-nation euro gained to 103.97 yen from 103.76, after earlier touching 103.67, the weakest since June 2001. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, rose 0.8 percent to 77.97 after touching 78.051, the most since Feb. 22. Fed Meeting The Fed said yesterday it will buy $400 billion of bonds with maturities of six to 30 years through June, while selling an equal amount of debt maturing in three years or less. The central bank will also reinvest maturing mortgage debt into mortgage-backed securities instead of Treasuries. The action “should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the FOMC said. The yen yesterday rose to the most since it touched a post- World War II record of 75.95 per dollar on Aug. 19, sparking concern the Bank of Japan will act to curb currency gains that threaten the earnings of exporters. Speculation that the BOJ was checking market rates for the yen yesterday ahead of possible intervention “set a floor” for the currency, said Barclays’ Yamamoto. Investors feel “it’s not good from a risk-reward perspective to sell dollar-yen.” U.S.-Japan Yields The spread between two-year Treasuries and Japanese bonds of the same maturity was at 6.56 basis points. It narrowed to 1.32 basis points on Sept. 19, the lowest since early 1992. Japanese Finance Minister Jun Azumi said yesterday he’s closely watching markets and will take “bold” action on currencies if needed. The euro rallied against the yen after Greece said it will target civil servants’ wages and pensioners to secure its next aid payout. Austerity measures announced yesterday include a 20 percent cut in pensions of more than 1,200 euros ($1,624) a month and lower wages for 30,000 state employees. The policies were demanded by international lenders to ensure Greece meets the deficit-reduction targets that are a condition of its 110 billion-euro bailout package. “There’s speculation that there’ll be some sort of agreement from Greece that will take the pressure off the euro in the near term,” said Derek Mumford, a Sydney-based director at Rochford Capital, a foreign-exchange and rates risk management firm. “People are being opportunistic buyers of the euro.” Euro RSI The euro’s 14-day relative strength index versus the yen held below 30 for a fourth day. A reading below that level indicates an asset may have fallen too quickly and may be due to rebound. Against the dollar, the euro’s RSI was 31.5. New Zealand’s currency slid against most major peers after the government statistics agency said gross domestic product expanded 0.1 percent in the second quarter from the previous three-month period. The median estimate in a Bloomberg News survey of economists was for a 0.5 percent quarterly increase. “The GDP number was a lot lower than the market expected,” said Tim Kelleher, Auckland-based head of institutional foreign-exchange sales at ASB Institutional, a unit of Commonwealth Bank of Australia. The currency will find buyers near 79.50 U.S. cents, he said. The so-called kiwi fell 0.4 percent to 79.83 U.S. cents after dropping to as low as 79.40, the weakest level since May 25. The currency traded at 61.25 yen from 61.27 yesterday. Below Parity The Australian dollar dropped below parity with the greenback for the first time in more than six weeks after a preliminary reading of 49.4 for a China manufacturing index released by HSBC Holdings Plc and Markit Economics today. A reading below 50 signals a contraction in manufacturing in China, Australia’s largest trading partner. “China is going to have an impact on sentiment towards the Aussie because the Aussie is seen as a freely tradeable proxy for the growth profile in, particularly, China because of its resource need,” said Tim Riddell, Singapore-based head of global markets research for Asia at Australia & New Zealand Banking Group Ltd. The Aussie fell as low as 99.94 U.S. cents before trading at $1.0033 from $1.0043 yesterday. To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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