BS: Dollar Weakens Most Since 2011 After Bernanke; Won, Ruble Gain
The Dollar Index fell by the most since October 2011 after Federal Reserve Chairman Ben S. Bernanke said inflation and unemployment rates show the U.S. economy still requires monetary stimulus.
The greenback slid versus most major peers after minutes of the Fed’s June meeting released yesterday showed many officials wanted more signs employment is improving before slowing bond purchases. Emerging-market currencies rose. The yen gained after the Bank of Japan boosted its view of the economy and refrained from adding stimulus. The European Central Bank will keep interest rates low until 2015, a Bloomberg survey forecast.
“Bernanke’s comments were dovish yesterday, driving the initial weakness in the dollar,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York. “However, the direction of monetary policy in the U.S. is headed toward providing less accommodation while the European Central Bank policy may become more accommodative.”
The dollar lost 0.4 percent to $1.3023 per euro at 10:22 a.m. in New York after depreciating to $1.3207, the weakest level since June 21. The U.S. currency fell 0.8 percent to 98.92 yen after sliding to 98.27 yen, the lowest since June 27. The yen rose 0.5 percent to 128.75 per euro.
The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the greenback against the currencies of six major U.S. trade partners, declined 1 percent to 83.188 after sliding as much as 1.9 percent, the biggest intraday drop in 20 months.
‘Sharp Selloff’
“We’ve had a very sharp selloff” in the dollar following the Fed minutes and Bernanke’s comments, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s also some concern over more evidence of weakening growth in the second quarter. The selloff is somewhat exaggerated. It’s certainly provided more attractive levels to buy the dollar at.”
The greenback remained weaker versus the euro and yen after initial claims for jobless benefits in the U.S. unexpectedly rose last week, increasing by 16,000 to a two-month high of 360,000, according to Labor Department data. A Bloomberg survey forecast a decline to 340,000.
Emerging-market currencies from South Korea’s won to Russia ruble rallied after Bernanke signaled that stimulus to the world’s largest economy won’t be dropped soon.
The won rose 1.2 percent to close at 1,122.39 per dollar, the biggest gain since December 2011. It touched 1,122.07, the strongest level since June 10. The ruble appreciated 0.8 percent to 32.6481 per dollar and reached 32.4795, the strongest since June 19.
‘Highly Accommodative’
Bernanke said yesterday in response to a question after a speech in Cambridge, Massachusetts, that “highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,”.
Minutes of the Fed’s June 18-19 meeting released earlier showed “many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases.” The Fed buys $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs.
“It doesn’t probably change the bigger picture, which is favorable for the dollar,” Jonathan Webb, head of foreign-exchange strategy at Jefferies Bache Ltd., a unit of Jefferies International Ltd., said on Bloomberg Television’s “First Up” with Susan Li in Hong Kong. “The bar for further QE is very high. It’s going to take very weak data to stop them from tapering.”
BOJ Meeting
The yen rose against the dollar as the BOJ increased its assessment of the economy by referring to a recovery for the first time since before an earthquake in March 2011. Policy makers stuck with their pledge to expand the monetary base by 60 trillion yen ($606 billion) to 70 trillion yen per year and said the economy was starting to improve moderately.
The dollar has dropped 0.5 percent over the past week versus nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 0.4 percent, and the euro rose 0.6 percent.
The ECB will keep its benchmark interest rate at a record-low 0.5 percent until at least 2015, according to the median forecast of 34 economists in a Bloomberg survey. Bank President Mario Draghi said last week in unprecedented forward guidance the ECB will keep rates low for “an extended period of time.”
More than three-quarters of respondents in the monthly survey said that Draghi’s definition of the phrase is more than 12 months.
‘Selling Opportunity’
Weak economic data in Europe will probably limit gains in the euro, according to strategists at Morgan Stanley. The 17-nation currency jumped 1.5 percent against the dollar yesterday, the most since Jan. 10.
Yesterday’s “sharp spike higher by euro-dollar, while having the potential to extend further in the near term towards the $1.3250 to $1.33 area, is likely to prove unsustainable, in our view, and would provide a renewed selling opportunity,” analysts led by Hans Redeker, head of global foreign-exchange strategy in London, wrote in a note to clients.
To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
