BLBG:Dollar Falls To Almost 1-Month Low Before Fed Decision
The dollar fell to almost the weakest level in one month against the euro on prospects the Federal Reserve will announce further stimulus when it concludes its two-day meeting today.
Demand for the 17-nation currency was bolstered as leaders at a Group of 20 meeting pledged to take “all necessary policy measures” to defend the currency union. A dozen of the 21 primary dealers who trade with the Fed expect some form of monetary easing. New Zealand’s dollar weakened after data showed the nation’s current-account deficit widened more than economists had estimated in the first quarter.
“There’s a degree of hope the Fed will announce stimulus measures tonight and that’s been undermining the dollar,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “If the Fed were to implement additional easing, it’s more likely to be modest steps.”
The dollar dropped 0.2 percent to $1.2709 per euro at 8:05 a.m. New York time, after reaching $1.2748 two days ago, the least since May 22. The shared currency added 0.2 percent to 100.36 yen. The Japanese currency was little changed at 78.96 per dollar.
The Fed will review new forecasts as it contends with financial stress in Europe and a U.S. unemployment rate that has remained above 8 percent for 40 months. JPMorgan Chase & Co. and Jefferies Group Inc. predict policy makers will extend the central bank’s so-called Operation Twist. The $400 billion program, which was announced in September and is due to end this month, involved selling short-maturity debt and buying longer- term bonds.
Dollar Index
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.1 percent to 81.272.
“Any stimulus from the Fed is bearish for the U.S. dollar,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “We’re expecting something stimulatory, whether or not it’s in the form of an extension of Twist, or a little bit of QE,” he said referring to an earlier program of economy-boosting asset purchases known as quantitative easing.
G-20 Backing
In its final statement, the G-20 backed Europe’s plans to consider a more integrated banking industry with common deposit insurance, a step that German Chancellor Angela Merkel has resisted. With attention shifting to a summit of European Union leaders in Brussels on June 28-29, the G-20 supported EU plans for closer economic union “that lead to sustainable borrowing costs.”
The euro is down from this year’s high of $1.3487 on Feb. 24, and has depreciated about 6.5 percent in the past 12 months against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Indexes.
The implied volatility for one-month euro-dollar options, which indicates expected swings in the underlying currencies, slipped to 10.59 percent. It reached a high of 13.29 percent last week. While that’s up from 8.25 percent in April, it’s below last year’s peak of 18.42 in September.
The JPMorgan G7 Volatility Index was at 10.11. It rose to 11.88 this month from 8.84 in April, the least since November 2007.
The euro is trading within a range of 98.55 yen and 100.93, and the currency may fall to 95.59 if it breaks below the lower level, Credit Suisse Group AG said in a note to clients, citing trading patterns.
Kiwi Weakens
A break below 98.55 would “pave the way for a selloff” taking it to interim support of 97.05 before possibly falling further to 95.59, according to analysts including David Sneddon, Credit Suisse’s London-based head of technical-analysis research. Support is an area on a price graph where orders to buy may be clustered.
The euro touched 95.60 yen on June 1, the lowest level since 2000, according to data compiled by Bloomberg.
New Zealand’s dollar declined after a government report today showed the country’s current-account deficit in the three months through March widened to 4.8 percent of gross domestic product, up from a revised 4.2 percent in the previous quarter. Economists estimated the deficit would increase by 4.6 percent.
The kiwi fell as much as 0.5 percent to 79.44 U.S. cents and declined 0.6 percent to as low as 62.64 yen.
-- With assistance from Monami Yui and Mariko Ishikawa in Tokyo. Editors: Paul Cox, Kenneth Pringle
To contact the reporter on this story: Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
