BLBG:Dollar Falls Toward 7-Month Low on Fed as Yen Drops
The dollar weakened to a seven-month low against the euro and the yen slumped as the Federal Reserve’s unexpected hold in monetary policy sent stocks higher and damped demand for haven currencies.
The Bloomberg U.S. Dollar Index dropped for a fourth day after Fed policy makers maintained monthly bond purchases at $85 billion. The yen slid against all 16 of its major peers after a Bank of Japan policy maker said pressure may mount to expand monetary stimulus. New Zealand’s dollar rose after data showed the nation’s economy accelerated, while the Thai baht surged the most since 2007. The pound was 0.2 percent from an eight-month high against the dollar.
“You’ve got to go with the flow -- you’ve got to buy risk currencies, risk assets,” Mitul Kotecha, the global head of foreign-exchange strategy at Credit Agricole SA (ACA) in Hong Kong, said in a Bloomberg Television interview. “Perhaps we’ve seen a delay in the recovery in the dollar because of the Fed delaying tapering, but the reality is that the Fed will taper.”
The Bloomberg U.S. Dollar Index fell 0.1 percent to 1,007.17 at 9:30 a.m. London time, set for the lowest close since Feb. 19.
The greenback slipped 0.2 percent to $1.3548 per euro after reaching $1.3553, the weakest since Feb. 7. It gained 0.9 percent to 98.84 yen after falling 1.2 percent yesterday. Japan’s currency dropped 1.1 percent to 133.91 per euro.
The MSCI Asia Pacific Index of shares advanced 2.2 percent after the Standard & Poor’s 500 Index surged to a record in New York. The Stoxx Europe 600 Index gained 1 percent.
Job Conditions
Fed policy makers said they want more proof of an economic recovery before curbing their $85 billion-a-month asset-buying program, known as quantitative easing, surprising analysts predicting a $5 billion cut to Treasury purchases. Fed Chairman Ben S. Bernanke said there is no fixed schedule for tapering, which could still start this year. A statement said interest rates will stay near zero while unemployment exceeds 6.5 percent and inflation tops 2.5 percent.
“The Fed statement was noticeably dovish,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “There is expectation that there may be more QE.”
The dollar declined 2.1 percent in the past week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen lost 1.3 percent and the euro was little changed.
Emerging Markets
Emerging-market currencies surged after the Fed maintained stimulus that’s helped drive up asset prices across the globe. The Malaysian ringgit climbed as much as 2.8 percent to 3.1453, the biggest intraday advance since 1998. The baht jumped 2.2 percent, set for the biggest daily gain since January 2007, to 30.97 per dollar. India’s rupee surged 2.6 percent to 61.77 versus the U.S. currency.
The Fed’s surprise decision threatens one of the surest bets in currency markets this year. Traders borrowing funds in yen and using the proceeds to buy dollars earned an annualized 21 percent this year through Sept. 17, a record based on data compiled by Bloomberg back to 1990. That carry trade was predicated on rising market interest rates in the U.S. as the Fed bought fewer and fewer bonds.
The yen weakened today against the greenback after climbing yesterday to a three-week high.
‘External Factors’
“The yen is being pushed into an area by external factors and that is probably going to weigh on the economy,” said Andrew Salter, a Sydney-based currency strategist at Australia & New Zealand Banking Group Ltd. (ANZ) “The broad question for Japan now is, does this implied strength in the yen bring the BOJ any closer to further monetary stimulus?”
Japan’s Ministry of Finance said today the nation had a trade deficit of 960 billion yen in August.
Takahide Kiuchi, the BOJ board member most openly critical of its monetary policy, said the central bank may come under pressure to expand easing.
“I can’t deny the possibility that the Bank of Japan will be influenced by external factors such as market expectations and will be forced to respond in such a way,” Kiuchi said today in a speech in Hokkaido, northern Japan.
New Zealand’s gross domestic product grew 2.5 percent in the three months through June 30 from a year earlier, beating the median forecast of 2.3 percent in a Bloomberg survey.
The kiwi climbed 0.5 percent to 84.13 U.S. cents after touching 84.22 cents, the highest since May 9. The currency’s 14-day relative strength index climbed to 77, above the 70 level that signals to some traders an asset has risen too far, too fast and may be due to reverse course.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
