MW:Dollar drops to 100 yen as Fed minutes, BOJ await
By Barbara Kollmeyer and Carla Mozee, MarketWatch
MADRID (MarketWatch) — The U.S. dollar drifted lower against major currencies on Wednesday, as investors await further insight on the U.S. Federal Reserve’s time frame for slowing the pace of its monetary stimulus.
The dollar dropped about 1% against the yen with the Bank of Japan due to wrap up its two-day policy meeting Thursday.
Against the Japanese yen, the dollar USDJPY -1.10% traded at ¥100.11, down from ¥101.05 on Tuesday. Most analysts don’t expect a change in the central bank’s policy or economic forecast, but a change of sentiment is hitting the dollar, said some.
“The weaker dollar is being led by USDJPY, with the break below 100 triggering more stops,” said Simon Smith, head of research at FxPro. “Yen gains in Asia appeared to come from a growing belief that the Bank of Japan will sound a more bullish tone on the economy at this week’s Bank of Japan meeting.”
The ICE dollar index DXY -0.38% , which measures the U.S. unit against six other major currencies, fell to 84.348 from 84.598. On Tuesday, the index hit its highest level since June 2010.
The euro EURUSD +0.29% regained some ground versus the dollar, fetching $1.2816, up from $1.2781 late Tuesday in North America.
The greenback on Tuesday logged a three-year high against the British pound, with sterling hit after weaker-than-expected U.K. data on industrial production. The pound on Wednesday was higher, trading at $1.4897, up from $1.4861.
The dollar index has gained roughly 1.6% this month, buoyed in part by expectations that the U.S. Federal Reserve will pull back on bond purchases if improvement in the economy meets the central bank’s expectations.
On Wednesday, investors will read through minutes from the Fed’s meeting in June for further clues as to when the central bank may start tapering its bond-buying program known as quantitative easing. The Fed currently buys $85 billion a month in government and mortgage bonds.
Quantitative easing tends to put pressure on the related country’s currency.
“Since QE was a negative for the [U.S. dollar] against most other majors, the dollar will be a winner on talk of its coming end, although it will lose some ground in the near term if tapering isn’t announced in September,” CIBC World Markets wrote in a report this week.
In addition to the Fed minutes, Fed Chairman Ben Bernanke is scheduled to speak at an economists’ conference in Boston on Wednesday afternoon and is expected to take questions from the audience.
Last Friday’s stronger-than-expected jobs report for June underscored expectations for tapering by the end of this year. Bernanke recently said the Fed may end asset purchases completely by next year.
Meanwhile, the euro and the pound have seen losses since the European Central Bank and the Bank of England last week each said their monetary policy would remain accommodative as regional leaders work to spur economic growth.
The International Monetary Fund on Tuesday lowered its growth expectations for the euro zone this year, but it raised its view on the U.K. economy.
The euro also got hit by a downgrade. Standard & Poor’s on Tuesday cut its sovereign-debt rating for Italy by one notch to BBB, citing softening economic conditions.
The Australian dollar AUDUSD +0.44% also rose against the dollar, at 92.08 U.S. cents versus 91.80 U.S. cents, though off its lows hit after the release of weaker-than-expected Chinese trade data.
The WSJ Dollar Index XX:BUXX -0.49% , which measures the currency against a slightly wider basket than the ICE dollar index, fell to 75.94 from 76.29.
