By William L. Watts and Sarah Turner, MarketWatch
LONDON (MarketWatch) -- Growing expectations the U.S. Federal Reserve will introduce additional monetary stimulus as well as the inability of officials to reach an agreement on currency policies kept pressure on the U.S. dollar Monday.
The dollar index (DXY 77.24, -0.09, -0.11%) , a measure of the U.S. unit against a basket of six major currencies traded at 77.229, down from Friday’s 77.295 in late North American trade on Friday.
Exchange rates were in the spotlight as finance ministers and central bankers met on the sidelines of the annual meetings of the International Monetary Fund and World Bank in Washington over the weekend. Officials agreed to cooperate on currency issues, but offered no concrete steps, leaving the IMF to say it would attempt to mediate the growing dispute between wealthy and emerging-market economies. Read about the IMF meeting.
Officials from the United States and other wealthy economies have accused China of deliberately undervaluing its yuan currency. China and other emerging-market economies charge that they’ve been subject to an unwanted deluge of capital as investors seek yield amid ultra-low interest rates in the United States and elsewhere. Read Forex Files column on currency wars and the euro.
“With the likelihood of a meaningful detente being reached between the two sides decreasing, it’s likely that the next week will see an intensification of the pressures that have been building since Sept. 15,” said Simon Derrick, chief currency strategist at Bank of New York Mellon.
That means a weaker dollar, “increased capital flows into emerging markets, increased intervention (possibly from Japan as well) and diversification will be the order of the day," Derrick said.
Traders may be reluctant to press the dollar too hard in the near term, however, after data from the U.S. Commodity Futures Trading Commission showed a further rise in speculative dollar short positions.
The euro (EURUSD 1.3932, -0.0063, -0.4502%) was boosted in Asian trade in the wake of the IMF meetings, pressing to a high of $1.4007, according to FactSet Research. The single currency traded at $1.3931 in recent action, little changed from $1.3924 late Friday.
“At this juncture, euro-long positions look stretched, which may limit upside gains for the short term,” said Kathleen Brooks, research director at Forex.com. The euro has rallied since hitting a four-year low against the dollar below $1.20 in June.
Euro bulls have benefited from the European Central Bank’s decision to stick to its policy of slowly withdrawing extraordinary liquidity measures implemented during the crisis. Euro-zone money-market rates have been slowly rising while expectations the U.S. Federal Reserve will move to implement additional quantitative easing have kept U.S. rates under pressure.
Friday’s soft U.S. jobs data reinforced expectations that the Fed will step in again to shore up the U.S. economy.
Against the yen (USDYEN 81.9600, +0.2100, +0.2569%) , the dollar fell to a fresh 15-year low near ¥81.40 earlier on Monday, traders said, before recovering. More recently, the greenback traded at ¥81.96, compared to ¥82.05 late Friday.
The Bank of Japan has tried to stem the rise of the yen against the dollar by intervening in the currency markets. Meanwhile, the Governor of the Reserve Bank of India said over the weekend that India will intervene in the foreign exchange markets, if necessary.
The British pound (GBPUSD 1.5931, -0.0031, -0.1942%) traded at $1.5942, down from $1.5957 late Friday.
“We are getting a little concerned about a few aspects regarding the U.K. economy. While the market is currently fixated with the idea that the Fed may adopt more [quantitative easing], the risks are rising that the Bank of England may do the same,” wrote strategists at HSBC.
