BLBG:Dollar Declines to Seven-Month Low Versus Yen Before Fed
The dollar dropped to the lowest in seven months versus the yen amid speculation the Federal Reserve will announce it will buy bonds under a program of quantitative easing that tends to debase the currency.
The greenback slid toward a four-month low against the euro. Gains in the common European currency were limited after Greece’s Prime Minister Antonis Samaras received the second refusal in four days from coalition partners over plans to reduce spending that are key to receiving international aid. New Zealand’s dollar traded near the strongest in more than four months after the nation’s central bank left its benchmark interest rate unchanged.
“The prevailing views are that the Fed will conduct another round of quantitative easing,” weighing on the dollar, said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company.
The dollar fell 0.2 percent to 77.70 yen as of 6:37 a.m. in London after earlier reaching 77.65, the weakest since Feb. 14. It slid 0.2 percent to $1.2923 per euro from $1.2900 yesterday, when it touched $1.2937, the weakest since May 11. The euro was little changed at 100.41 yen after gaining 0.5 percent to 100.42 yesterday.
Fed Easing
The Fed is projected to announce a third round of quantitative easing, or QE, today at the end of a two-day meeting, according economists in a Bloomberg News survey. The central bank is also predicted to extend the duration of its zero-interest-rate policy into 2015. Two previous series of bond purchases totaling $2.3 trillion have failed to revive the labor market, which Fed Chairman Ben S. Bernanke said last month is a “grave concern.”
“Anticipation of QE3 is very high,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “The dollar may extend declines for some time, given that QE3 isn’t priced-in completely.”
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, declined 0.2 percent to 79.588. It yesterday touched 79.522, the lowest since May 4.
German Ruling
The 17-nation euro rose yesterday after Germany’s constitutional court said the country can ratify the European Stability Mechanism, a 500 billion-euro ($646 billion) rescue fund. The court also ruled Germany’s 190 billion-euro contribution can’t be increased without legislative approval.
Spanish and Italian government bonds advanced yesterday following the German court decision. Spain’s 10-year yield declined seven basis points, or 0.07 percentage point, to 5.63 percent, while Italy’s 10-year rate fell five basis points to 5.03 percent. Italy will auction today as much as 6.5 billion euros of government securities maturing in 2015, 2017 and 2026.
“The euro strengthened as some of the challenges facing the region have been cleared,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “The euro could nudge a little higher if we get QE” from the Fed, he said.
The dollar has depreciated 1.8 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen fell 0.2 percent and the euro advanced 0.7 percent over the same period.
Technical Indicators
The euro’s rally against the dollar “is turning into a strong trending mode,” according to Quek Ser Leang and Jimmy Koh at United Overseas Bank Ltd. in Singapore, citing a climb in the currency pair’s average directional index, or ADX, to above the 25 level.
The shared currency is approaching major resistance at the $1.2985 to $1.2995 level, while the immediate support level is at $1.2720 to $1.2740, they wrote.
“There are no signs of a top just yet but any daily closing below $1.2720-40 will suggest a possible end of the trending move,” the analysts wrote in a note to clients dated today.
The ADX is the moving average of the directional movement indicator, a theory developed by J. Welles Wilder in 1978 that measures how far a security moves from an average price range calculated from second to second. Resistance and support refer to where automatic orders to sell or buy may be clustered.
Gains in the euro were limited as Greece’s Samaras faces renewed opposition from Democratic Left leader Fotis Kouvelis and Pasok leader Evangelos Venizelos after a meeting yesterday over plans to reduce wages and pensions.
The proposal has already been criticized by inspectors from the euro area, the European Central Bank and the International Monetary Fund as not going far enough to receive the next tranche of aid.
“Considering the Greek situation, I still see about a 70 percent chance the nation will leave the euro bloc,” said FX Prime’s Ueda.
N.Z. Rates
The New Zealand dollar remained higher following two days of gains after the country’s Reserve Bank left its benchmark interest rate unchanged at 2.5 percent today, in line with expectations of all 16 economists surveyed by Bloomberg. Governor Alan Bollard, who will step down later this month, signaled rates would remain unchanged through mid-2013.
The currency climbed 0.1 percent to 82.14 U.S. cents. It yesterday rose as high as 82.38, the strongest since April 30.
-- With reporting by Hiroko Komiya in Tokyo, Mika Otsuka in New York. Editors: Benjamin Purvis, Naoto Hosoda
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
