MW: U.S. dollar extends decline, falls below 85 yen
By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) — The U.S. dollar continued to decline in Asian trading Wednesday, buying less than 85 Japanese yen after the U.S. Federal Reserve said it was ready to take further action to boost the economy.
The dollar index (DXY 80.15, -0.29, -0.36%) , a measure of the greenback against a basket of six major currencies, fell to 80.164 in Asia’s morning trading, compared with 80.452 late Tuesday in North American trading.
The Federal Open Market Committee on Tuesday said inflation is currently running below its target and sounded more glum on its growth outlook, laying the groundwork for further asset purchases, or another leg of so-called quantitative easing. Read story on Fed decision.
“The dovish FOMC statement has effectively killed the dollar,” Kathy Lien, director of currency research at GFT, said in a note to clients issued late Tuesday in New York. “The Federal Reserve is laying the groundwork for additional quantitative easing and in anticipation of what now appears to be the inevitable, investors have sold dollars aggressively.”
In Tokyo, the dollar (USDYEN 84.7500, -0.3700, -0.4347%) bought ¥84.82, down from ¥85.07 in North American trading late Tuesday.
“If the Fed were to initiate asset purchases, it would effectively introduce a big buyer into the bond market which means that USD/JPY [U.S. dollar/Japanese yen] could fall back to its pre-intervention levels,” said Lien.
“However, we expect the Bank of Japan to step into the market and intervene once again before that occurs,” she said. “When USD/JPY dips [to] ¥84, the risk of another round of intervention will be extremely high.”
Japanese monetary authorities intervened in the currencies market a week ago, just as the dollar hit a 15-year low of ¥82.85. Read a related story on the intervention.
On Tuesday, the dollar fell around 1% against the euro following the Federal Reserve’s statement. See Tuesday’s currencies report.
In recent dealings, the euro (EURUSD 1.3296, +0.0041, +0.3093%) bought $1.3301, up from $1.3242 in late North American trading on Tuesday, which was already the highest level on a closing basis since early August, according to FactSet Research.
