BLBG:Dollar Falls to 4-Month Low Versus Euro on Fed; Yen Lower
The dollar slid to a four-month low against the euro on Federal Reserve Chairman Ben S. Bernanke’s plan to conduct open-ended monetary easing, a process that tends to debase the U.S. currency.
The euro was set for the longest stretch of weekly gains against the yen in three years as Asian stocks climbed to the highest level since May, boosting demand for riskier assets. The yen retreated from a seven-month high against the greenback after comments by Japan’s Finance Minister Jun Azumi signaled he’s ready to intervene to weaken the currency. Singapore’s dollar climbed to a one-year high.
“Bernanke made a very strong case for engaging in quantitative easing,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “We’re going to see the shock-waves from this policy in the U.S. dollar for a foreseeable period of time.”
The dollar slid to $1.3034 per euro, the weakest since May 8, and traded at $1.3023 as of 6:34 a.m. in London, 0.3 percent lower than the close in New York yesterday. The yen lost 0.1 percent to 77.60 per dollar after advancing to 77.13 yesterday, a level unseen since Feb. 9. The euro climbed to 101.21 yen, the highest since July 2, before trading 0.4 percent higher at 101.06.
For the week, the U.S. currency has lost 1.6 percent against the euro and 0.8 percent versus the yen. The euro has risen 0.8 percent against the Japan’s currency, a fifth weekly advance that’s the longest since March 2009.
The MSCI Asia Pacific Index (MXAP) of shares climbed 2.5 percent to the highest level since May 4. The implied volatility of three-month options for Group of Seven currencies fell to 7.75 percent, an almost five year low, according to JPMorgan Chase & Co.’s G7 Volatility Index.
Fed Easing
The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion a month of mortgage debt in a third round of quantitative easing. The U.S. central bank will continue buying assets, undertake additional purchases and employ other policy tools as appropriate “if the outlook for the labor market does not improve substantially,” the Federal Open Market Committee said yesterday in a statement.
The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014.
Yen Intervention
Japan’s Azumi told reporters today that he’ll take “decisive action” if necessary. The FOMC decision reflects concern about the U.S. economy, which he’s watching “carefully,” he said.
Azumi ordered the Bank of Japan (8301) to sell yen in markets on Oct. 31 after the yen strengthened to a post-war record of 75.35 per dollar.
“The FOMC is actively trying to engage in a policy of a weaker currency, and that is having an effect in other markets, of which the yen is one,” ANZ’s Salter said. “It’s pushing up against the tolerance of the Ministry of Finance” in Japan.
Singapore’s dollar reached S$1.2213 per greenback today, the strongest since Sept. 9, 2011. The British pound climbed to $1.6206, the highest since May 3. The Australian currency advanced 0.2 percent and its New Zealand counterpart gained 0.4 percent.
The dollar may rally from a seven-month low versus the yen, Forecast Pte said. A “long lower shadow” formed on the so- called candle chart yesterday suggests sellers forced the greenback down before buyers pushed it back up toward the opening level by the end of the day, according to Pak Lai Ng, a Singapore-based technical analyst at Forecast.
‘Rebound Likely’
“We see a long tail at the bottom of the candle stick chart,” Ng said. “It would suggest that a dollar rebound is likely from here.”
Should the greenback rise back above 78 yen, it could advance to 78.84 within two weeks, he said.
Demand for the euro was limited before a German report on Sept. 18 that may show investor confidence in the euro region’s biggest economy remains weaker.
The ZEW Center for European Economic Research is forecast to say its index of investor and analyst expectations, which aims to predict economic developments six months in advance, was minus 20 in September, according to a Bloomberg News survey of economists. The gauge slid to minus 25.5 last month, the lowest this year.
“In the medium-to-long term, euro-dollar is in a gradual downward trend,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “The growth outlook for the euro region is far weaker than that of the U.S.”
Euro-area finance ministers and central-bank officials will hold a two-day meeting starting today in Cyprus to discuss the next steps in tackling the region’s debt crisis.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
