Euro bolstered as Portugal sells €750 million in bonds
By William L. Watts and Myra P. Saefong, MarketWatch
LONDON (MarketWatch) — The dollar extended losses in currency trading Wednesday, a day after the Federal Reserve said it was ready to take further action to boost the U.S. economy and fend off any deflationary threats.
The dollar index (DXY 79.87, -0.57, -0.71%) , a measure of the greenback against a basket of six major currencies, fell to 79.739 in recent action, compared with 80.452 late Tuesday.
Although the policy-setting Federal Open Market Committee “is certainly not making a move to deliberately weaken the dollar (and it is worth reiterating that dollar policy remains the remit of the Treasury, not the Fed), it is reasonable to suppose that the dollar will come under renewed downward pressure, said Neil Mellor, currency strategist at Bank of New York Mellon, in a research note.
The catalyst for such pressure is the threat of additional quantitative easing undertaken by the U.S. central bank, Mellor wrote.
Moreover, since the move comes in an environment where all major foreign-exchange players are facing “overt criticism” over currency policy, “it also seems reasonable to say that officials in Japan, China and, arguably, even Europe will see it as evidence that the U.S. is reverting to a policy of benign neglect toward the greenback,” he said.
The FOMC on Tuesday said inflation is currently running below its target and sounded more glum on its outlook for growth in the largest global economy, effectively laying the groundwork for further asset purchases, or another leg of so-called quantitative easing. Read story on Fed decision.
Against this backdrop, the euro (EURUSD 1.3367, +0.0112, +0.8450%) traded as high as $1.3396, according to FactSet Research.
That put the single currency at its highest level against the U.S. unit since April. It changed hands in recent action at $1.3371, up from $1.3242 in late North American trading on Tuesday.
The single currency extended gains after Portugal auctioned 750 million euros ($997.1 million) of 4- and 10-year bonds. The amount was at the bottom end of the range of €750 million to €1 billion available.
Portugal’s borrowing costs rose, reflecting recent pressure on some peripheral euro-zone government bonds, but demand was solid.
Also Wednesday, the British pound (GBPUSD 1.5649, +0.0041, +0.2627%) initially pulled back in dollar trading but soon regained its footing, changing hands in recent action at $1.5653, a gain of 0.3% from Tuesday
Minutes of the Bank of England’s Sept. 8-9 meeting showed an increase in concern among some members that the bank may need to implement further stimulus measures as questions have arisen over the sustainability of the U.K. recovery. Read about the Bank of England’s meeting minutes.
The Bank of England voted 8-1 to keep interest rates on hold and to leave its quantitative-easing program on pause, with member Andrew Sentance dissenting for the fourth consecutive time with his call for a hike in the bank rate by a quarter of a percentage point, to 0.75%.
In Tokyo, the dollar (USDYEN 84.6700, -0.4700, -0.5522%) bought ¥84.59, down from ¥85.07 in North American trading late Tuesday.
The Financial Times late Tuesday reported that Japanese Prime Minister Naoto Kan said further foreign-exchange intervention would be “unavoidable” if there is a “drastic change” in currency levels.
“It appears that policy makers have set a clear floor for the currency which will be habitually maintained if and when it is breached,” wrote currency strategists at UBS.
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.
