The dollar declined against most major peers on speculation reports this week pointing to a faltering U.S. economy will spur the central bank to consider more asset purchases, or quantitative easing, to support growth. The dollar slid versus the euro before Federal Reserve policy makers end a two-day meeting today. The euro strengthened after Greece’s Cabinet backed Prime Minister George Papandreou’s plan to put a bailout package to a referendum and before the region’s leaders meet to stem the debt crisis. It pared gains after the European Financial Stability Facility was said to postpone a bond sale. “The dollar is softening into the meeting on talk of QE,” said Jane Foley, a senior currency strategist at Rabobank International in London. “I think that may be premature. The Fed’s tone will be very cautious. We’ve had a glimmer of hope or optimism on the Greek situation,” which supports the euro. The U.S. currency weakened 0.5 percent to $1.3765 per euro as of 10:05 a.m. London time, after gaining 3.5 percent over the past three days. The dollar slid 0.4 percent to 78.06 yen. The euro was little changed at 107.44 yen. The Stoxx Europe 600 Index dropped 0.5 percent, extending the biggest three-day decline in almost two months. German bonds fell, with the 10-year yield rising four basis points to 1.80 percent. Fed Engineering Fed officials are probably engineering a further round of large-scale asset purchases, while they are unlikely to announce a decision today, according to economists in a Bloomberg News survey. Sixty-nine percent say Chairman Ben S. Bernanke will embark on a third round of quantitative easing, or QE3, with 36 percent predicting the move in the first quarter of next year, according to the poll of 42 economists from Oct. 26-31. The Federal Open Market Committee plans to release a policy statement at 12:30 p.m. Washington time. The FOMC forecasts will be released at 2 p.m., and Bernanke is scheduled to hold a press conference beginning at 2:15 p.m. Figures tomorrow will show U.S. factory orders in September declined 0.2 percent after dropping by the same amount in August, economists said in a Bloomberg News survey. The Institute for Supply Management’s factory index dropped to 50.8 last month from 51.6 in September, data showed yesterday. The median forecast of economists was 52, with 50 being the dividing line between growth and contraction. Greek Backing Poor U.S. data “would contribute to risk aversion, which could be dollar supportive, but I think probably the more significant reaction would be the markets will see the data as a trigger for more QE,” said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole Corporate & Investment Bank. “On that basis, I think the only safe haven will be the yen, and the dollar will end up coming under some pressure.” The euro reversed an earlier decline versus the dollar after a Greek official told reporters that the Cabinet gave Papandreou unanimous backing for his referendum plans. Government spokesman Elias Mosialos said the referendum will be held “as soon as possible,” and that the vote of confidence in Parliament is also scheduled to begin today, concluding by the end of the week. “Initially there was some selling because there were some concerns of a division between the Cabinet and the Greek government,” said Lee Wai Tuck, a currency strategist in Singapore at Forecast Pte. “But when they said they unanimously back the referendum, there was some buying back of the euro.” In Cannes, France, today Papandreou will brief German Chancellor Angela Merkel, French President Nicolas Sarkozy, European Central Bank President Mario Draghi and other officials on developments in Greece. Group of 20 leaders will also meet in the French resort tomorrow to discuss the debt crisis. “This buying, I suppose, is just some covering back of positions ahead of the meeting,” Lee said. “Overall, the euro is still pretty heavy. It’s still a sell-on-rallies market.” To contact the reporters on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net; Keith Jenkins in London at kjenkins3@bloomberg.net To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

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