BS: Dollar Falls on Speculation Fed May Buy Large Amounts of Debt
Oct. 28 (Bloomberg) -- The dollar fell against all of its most-traded counterparts on renewed demand for higher-returning assets as traders speculated the Federal Reserve remains open to buying a large amount of government debt.
The U.S. currency dropped for the first time in three days against the euro as Treasuries rose after policy makers asked dealers for projections of asset purchases over the next six months. New Zealand’s dollar climbed after its central bank said high export prices and reconstruction in earthquake-hit areas were likely to offset weaker spending.
“There are very few people who think that the Fed won’t do anything,” said Paul Robinson, head of European currency strategy at Barclays Plc in London. “The dollar could weaken up to the Fed decision.”
The dollar depreciated 0.8 percent to $1.3876 per euro at 8:38 a.m. in New York, from $1.3769 yesterday. The U.S. currency fell 0.7 percent to 81.17 yen, from 81.75, after touching the 15-year low of 80.41 yen on Oct. 25. The euro was little changed at 112.64 yen, compared with 112.58 yen.
Equities advanced, with the MSCI World Index gaining 0.4 percent on speculation corporate earnings will improve as global growth quickens. The yield on the 10-year Treasury note fell 0.03 percentage point to 2.69 percent.
The dollar briefly pared its drop against the yen after the Labor Department reported that initial jobless claims unexpectedly fell to a three-month low.
Jobless Claims
Applications for U.S. unemployment benefits dropped to 434,000 in the week ended Oct. 23, from 455,000 in the previous week, the Labor Department reported. The median forecast of 47 economists in a Bloomberg News survey was for an increase to 455,000 from a previously reported 452,000.
An index of executive and consumer sentiment in the 16 euro nations rose to 104.1 in October from 103.2 in September, exceeding the median estimate for 103.5 in a Bloomberg survey of economists.
The yen strengthened against the dollar as the Bank of Japan signaled concern that U.S. easing will cause the currency to appreciate by bringing forward the date of its next policy meeting to follow next week’s Fed decision. The central bank also said today it will buy corporate debt with lower credit ratings than it accepted before, as part of its latest easing program to support the economy.
The Bank of Japan left its benchmark interest rate at zero to 0.1 percent and kept the size of its credit and asset-buying programs unchanged.
‘More Aggressive’
“More aggressive Fed quantitative easing than expected would increase the likelihood that dollar-yen breaks its record low, forcing the Japanese authorities to respond in a timely fashion,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said via e-mail. “Retaliatory action from the BOJ could include increasing the size of” its asset purchase program, he wrote.
China’s yuan fell to its weakest level this month after the central bank set a lower reference rate for a third day, spurring speculation the government is limiting appreciation.
The People’s Bank of China set the reference rate 0.11 percent weaker at 6.6986 against the greenback. The yuan has weakened 0.5 percent since policy makers from the Group of 20 nations said on Oct. 23 they would refrain from “competitive devaluation” before the Nov. 11-12 leaders’ summit.
New Zealand’s dollar gained 0.6 percent to 74.98 U.S. cents after Reserve Bank Governor Alan Bollard said interest rates will probably need to rise in the future. Bollard and his fellow policy makers left the benchmark rate unchanged at 3 percent today, as forecast by all 15 economists surveyed by Bloomberg.
South Korean Won
The South Korean won gained 0.4 percent to 1,123.70 versus the dollar as the central bank said the current-account surplus almost doubled in September, widening to $4.06 billion from $2.19 billion in August.
Sweden’s krona rose against the dollar and the euro as retail sales grew more than analysts had anticipated. The currency gained 0.9 percent to 6.7201 per dollar and advanced 0.2 percent to 9.3107 versus the euro.
The Dollar Index, which tracks the greenback against currencies of six major U.S. trading partners, declined 0.6 percent to 77.698. The gauge has fluctuated between gains and losses this month as speculation additional credit-easing measures from the Fed will weaken the currency were offset by bets the central bank will buy a smaller amount of bonds than some analysts predicted. It has fallen 1.3 percent since Sept. 30 and is 0.2 percent lower year to date.
A New York Fed survey, obtained by Bloomberg News, asked investors and dealers about their expectations for the initial size of any new program of debt purchases and the time over which it would be completed.
Estimates for the size of the asset-purchase program include forecasts for $1 trillion by Bank of America-Merrill Lynch and $2 trillion by Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after its Nov. 2-3 meeting.
--Editors: Dennis Fitzgerald, Greg Storey
To contact the reporter on this story: Paul Dobson in London at pdobson2@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
