BS: Dollar Declines to Lowest in Five Months as Fed Hints at Easing
Sept. 22 (Bloomberg) -- The dollar slid to the lowest in almost five months versus the euro on speculation the Federal Reserve’s willingness to ease monetary policy further will damp demand for U.S. assets.
The greenback slid against all of the 16 most-traded currencies as the Dollar Index dropped to its lowest in six months. U.S. policy makers said yesterday they “will provide additional accommodation if needed” to spur growth. The euro rose for a third day after Portugal sold 750 million euros ($1 billion) of bonds and investors bought the maximum amounts offered at Spanish and Irish debt sales yesterday.
“The likelihood for more Fed easing has clearly increased and that’s hurting the dollar,” said Stephan Maier, a foreign- exchange strategist at UniCredit SpA in Milan. “The market may be getting ahead of itself, anticipating too much easing.”
The dollar dropped to $1.3356 per euro as of 10:40 a.m. in London from $1.3264 yesterday in New York, after reaching $1.3382, the weakest since April 27. The greenback fell to 84.6 yen from 85.09 yen. The euro climbed to 113.21 yen from 112.87.
The U.S. currency accelerated declines after the Dollar Index, used by InterContinentalExchange Inc. to measure the greenback against the currencies of six of its major trading partners, fell below 80 for the first time since March 18, sparking some traders to unwind bets on a gain, according to Lee Hardman, a currency strategist at Bank of Tokyo Mitsubishi UFJ Ltd. in London. It fell 0.8 percent to 79.784 after touching 79.736 earlier, the lowest since March 18.
The Federal Open Market Committee said in a statement after its meeting yesterday in Washington that “inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate.”
Fed Statement
Futures on the Chicago Mercantile Exchange show a 70 percent chance the U.S. central bank will keep its target rate for overnight bank lending between zero and 0.25 percent through its June 2011 meeting, up from 61 percent odds a day earlier.
“The trend is dollar negative, because growth is decent enough for risky assets to behave well, but with increased odds of quantitative easing,” said David Deddouche, a foreign- exchange strategist for Societe Generale SA in Paris. “The dollar weakness is due to concerns on the quality of the Fed’s balance sheet.”
The dollar may decline to $1.35 per euro within a week, Deddouche said.
The Federal Housing Finance Agency’s monthly index for house prices fell 0.2 percent in July, after a 0.3 percent drop in June, according to a Bloomberg survey before today’s report.
Portuguese Auction
The euro rose for a third day against the dollar as Portugal issued 2014 and 2020 bonds.
Ireland sold 1.5 billion euros of debt yesterday, the National Treasury Management Agency said. Spain sold 7 billion euros of 12-month and 18-month bills, the maximum target, the Bank of Spain said.
The auction results “suggest that concerns are abating,” Steven Englander, New York-based head of Group of 10 currency strategy at Citigroup Inc., wrote in a note yesterday. “The euro is increasingly attractive in an environment of likely further quantitative easing, abating risk aversion and with positioning at best neutral and probably still largely short euro.” A short position is a bet an asset will fall.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 9,644 on Sept. 14 compared with net shorts of 23,699 a week earlier, data from the Commodity Futures Trading Commission showed on Sept. 17.
Demand for the yen was tempered on speculation Japan will sell its currency again after intervening in the foreign- exchange market last week for the first time in more than six years. The yen has risen about 1 percent since the intervention on Sept. 15 pushed it down to a one-month low from the strongest level in 15 years.
BOJ Easing
Bank of Japan board member Ryuzo Miyao said today the central bank is monitoring the impact of the yen’s strength on the economy and the currency’s gain is a downside risk to the nation’s recovery. He also said the bank plans to take appropriate credit-easing steps if needed.
Prime Minister Naoto Kan said Japan should put in place economic and monetary policies to weaken the yen, the Financial Times reported today, citing an interview.
“This is the pivotal area for dollar-yen,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “This is the area where there was intervention last week and the market will maybe put a line through the sand around 84.80 yen.”
The New Zealand dollar rose before a report tomorrow that economists said will show the nation’s recovery quickened.
Gross domestic product increased 0.7 percent in the second quarter, faster than a 0.6 percent gain in the previous three months, according to a Bloomberg survey ahead of the data.
New Zealand’s dollar gained 0.46percent to 73.97 U.S. cents.
--With assistance from Keiko Ujikane in Tokyo and Ron Harui in Singapore. Editors: David Clarke, Peter Branton.
To contact the reporters on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
