BLBG:Dollar Weakens Versus Euro, Yen as Investors Weigh Likelihood of More QE
The dollar weakened against the euro and the yen slid versus most of its major peers as investors mulled whether Federal Reserve Chairman Ben S. Bernanke will announce further monetary stimulus for the economy tomorrow.
South Africa’s rand and Norway’s krone were the best performers against the dollar and yen as stock-market gains in Asia and Europe spurred demand for higher-yielding assets. Speculation has intensified that Bernanke may signal a willingness to embark on a third round of so-called quantitative easing, or QE3, when he speaks in Jackson Hole, Wyoming. The euro gained versus most of its major counterparts even as a report predicted German consumer confidence will fall.
“The market is treating Bernanke’s speech tomorrow almost like a policy meeting,” said Steve Barrow, the London-based head of Group-of-10 currency research at Standard Bank Plc, wrote in a client note today. “If he signals QE3, it could support higher-yielding assets like stocks, the Scandinavian currencies and the Aussie and kiwi dollars at the expense of the U.S. dollar. If the market is disappointed, then it could see a return to risk-off.”
The dollar declined 0.3 percent to $1.4450 per euro as of 6:54 a.m. in New York, after declining 0.4 percent to $1.4475. The greenback fell 0.7 percent to 7.2187 rand and lost 0.6 percent against Norway’s krone to 5.4028.
Yen Slides
The yen declined for a fifth day against the euro, losing 0.5 percent to 111.56 and was 0.3 percent weaker at 77.23 per dollar. Against Norway’s krone, the yen slid 1 percent to 14.3054, also a fifth day of losses.
The U.S. currency has traded within a two-cent range against the euro this week, between $1.4347 and $1.45. Bernanke may announce “more innovative measures” to boost the U.S. economy than simply announcing further purchases of government debt, Barrow said.
“Flows are pretty light at the moment; people are waiting for Bernanke’s speech,” said Chris Walker, a currency strategist at UBS AG in London. “There are some people looking for something to come out of Jackson Hole but the risk is that it disappoints.”
Bernanke told Congress in July that the Fed’s options to bolster the economy include extending the average maturity of its bond holdings and cutting the interest rate on excess reserves, as well as buying more debt and keeping rates low.
Stocks Gain
“There seems to be a return to risk appetite,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “Clearly, some participants in the market are expecting something spectacular from Bernanke’s Jackson Hole speech tomorrow.”
The Stoxx Europe 600 Index rose as much as 1.1 percent, following a 0.6 percent rise in Asia’s benchmark MSCI Asia Pacific Index.
At last year’s Jackson Hole conference, Bernanke said the Fed would “do all that it can” to ensure a continuation of the economic recovery and that buying more debt might be warranted if growth slowed. Two months later, the Fed announced a $600 billion second round of asset purchases that ended in June.
Not all analysts agree that Bernanke will signal more easing tomorrow, given some economic data suggests the U.S. economy is stabilizing.
Jobless Claims
Labor Department figures today may show U.S. jobless claims fell by 3,000 to 405,000 in the week ended Aug. 20 from the previous week, according to a Bloomberg survey of economists.
Those “hoping for QE3 to be announced will be disappointed,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “We might see a little bit of rise in the U.S. dollar in the near term on the back of any pull-back in equities.”
The Swiss franc appreciated 0.2 percent to 79.41 centimes per dollar, snapping a three-day slump. Against the euro, the franc was little changed at 1.1473.
The Swiss National Bank on Aug. 3 cut key interest rates to near zero in an attempt to curb gains in the franc, which has rallied 14 percent against the euro in the past 12 months.
The Nuremberg, Germany-based market research company GfK SE forecast its consumer sentiment index will decline for a sixth month in September amid household concerns that the global economy is slowing. That follows data this week that showed business confidence in Europe’s biggest economy was at the lowest in more than a year and investor sentiment slid the most in five years.
Funding Program
The yen lost 0.5 percent against a basket of nine developed-market peers as measured by Bloomberg Correlation- Weighted Currency Indexes today. The decline comes after Japanese Finance Minister Yoshihiko Noda announced a $100 billion funding program yesterday intended to encourage the exchange of “yen-denominated funds to foreign currencies.”
The measures are meant to curb gains in the yen, which has advanced 4.1 percent in the past 12 months against its nine major counterparts. Japan’s currency reached a post-World War II record of 75.95 per dollar on Aug. 19, hurting the competitiveness of the country’s export-led economy.
“It’s hard to imagine the government’s package will have a strong impact” on the yen, Masafumi Yamamoto, chief currency strategist at Barclays Bank Plc in Tokyo, wrote today. The plan doesn’t include coordinated action with the Bank of Japan in monetary easing or further intervention, he wrote.
To contact the reporter on this story: Garth Theunissen in London gtheunissen@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
