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 since 2009 as Credit Suisse Group AG and Morgan Stanley raised their forecasts for the shared currency. The yen retreated from a seven-month high against the greenback after comments by Finance Minister Jun Azumi signaled he’s ready to intervene to weaken the currency.
“There was some uncertainty whether the Fed would pull the trigger this month,” said Jeremy Stretch, head of foreign- exchange strategy at Canadian Imperial Bank of Commerce in London. “While everyone knew it was coming, the timing was a little bit up in the air so it’s caused a bit of a reaction. There’s risk-on trading and the path of least resistance seems to be a dollar selloff. It’s tough to stand in the face of a weakening dollar trend.”
The dollar fell 0.6 percent to $1.3074 per euro at 11:12 a.m. London time, the weakest level since May 4. The yen dropped 0.9 percent to 78.15 per dollar after strengthening to 77.13 yesterday, a level unseen since Feb. 9. The euro climbed 1.5 percent to 102.18 yen, after reaching 102.24, the highest since May 17.
The greenback has lost 2 percent this week against the euro and 0.1 percent versus the yen. The euro has risen 1.9 percent against Japan’s currency, bound for a fifth weekly advance that’s the longest since March 2009.
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.
The Dollar Index, which IntercontinentalExchange Inc. (ICE) uses to track the greenback against the currencies of six U.S. trading partners, declined 0.3 percent to 79.085, after touching 78.949, the lowest since May 2.
Yen Intervention
The gauge slumped as much as 19 percent to 72.696 from 89.624 as the Fed bought $2.3 trillion of mortgage and Treasury debt in the first two rounds of QE from December 2008 to June 2011.
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 postwar record of 75.35 per dollar.
There are “heightened intervention concerns, an easing of safe-haven demand for yen, and building expectations that the Bank of Japan, under increasing government pressure, may ease monetary policy next week,” said Lee Hardman, a foreign- exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.
Cyprus Meeting
“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,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “It’s pushing up against the tolerance of the Ministry of Finance” in Japan.
Singapore’s dollar rose to S$1.2201 against its U.S. equivalent today, the strongest since Sept. 9, 2011. The pound climbed to $1.6218, the highest since May 2. The South Korean won appreciated 1 percent to 1,117.30 per dollar, the biggest daily jump since May 28.
The euro rose for a fourth day against the greenback as Europe’s finance ministers and central-bank officials gather in Cyprus for a two-day meeting starting today to discuss the next steps in addressing the region’s sovereign-debt crisis.
Morgan Stanley today raised its year-end forecast for the euro to $1.34 from $1.19, while Credit Suisse (CSGN) increased its three-month projection to $1.23 from $1.17.
Optimism that policy makers are tackling the crisis had pushed Switzerland’s franc, seen as a haven, to the lowest in more than eight-months against the 17-nation shared currency.
The Swiss currency dropped 0.2 percent to 1.2176 per euro after depreciating to 1.2178, the weakest since Jan. 6.
Sweden’s krona weakened against both the euro and the dollar after second quarter gross domestic product growth was revised down to an annual 1.3 percent from a earlier 2.3 percent estimate.
The krona weakened 0.6 percent against the euro to 8.5882 and depreciated 0.1 percent versus the dollar to 6.5746.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
