BLBG:Dollar Index Reaches 7-Month High as Federal Reserve Acts to Revive Growth
The Dollar Index climbed to a seven-month high after the Federal Reserve said it will act to lower long-term borrowing costs to prevent the economy from sliding into another recession.
The yen rose against most of its major peers, paring the biggest decline in a week against the dollar. The euro fell versus the U.S. currency as Greece said it will accelerate budget cuts to keep emergency loans flowing. New Zealand’s dollar declined after data showed economic growth almost stalled while Australia’s dollar slid below parity with the greenback for the first time in six weeks after a survey showed China’s manufacturing may slow.
“The dollar rose sharply following the Federal Open Market Committee announcement,” Adrian Schmidt and Jennifer Hau, foreign-exchange strategists at Lloyds Bank Corporate Markets in London, wrote in a client note today. “Weak global economic growth and uncertainty in Europe suggest risk appetite will likely remain poor for some time. It will be hard to see the dollar soften in the short-term.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose 0.4 percent to 78.003 as of 8:48 a.m. in London, after touching 78.063, the highest since Feb. 22.
The dollar traded 0.1 percent stronger at 76.53 yen, after climbing as much as 0.7 percent, the steepest intraday gain since Sept. 15. The U.S. currency added 0.3 percent to $1.3539 per euro. The 17-nation currency was little changed at 103.61 yen, rebounding from the 103.55 reached earlier, which was the weakest since June 2001.
‘Downside Risks’
The Fed made its second move in as many months to reduce borrowing costs to prevent what it described as “significant downside risks” to the economic outlook in a statement delivered in Washington yesterday after a two-day meeting. Policy makers will extend the average maturities of bonds in its portfolio by purchasing $400 billion of long-term debt and selling an equal amount of shorter-term securities, thereby pushing down yields on longer-dated Treasuries.
“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 Plc in Tokyo. “Dollar strength across the board pushed up dollar-yen as well.”
To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net;
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
