BS: Dollar Falls as Rising Jobless Claims Spur Stimulus Bets
The dollar fell to the weakest level against the euro in seven weeks as jobless claims rose last week to a one-month high, increasing speculation that the Federal Reserve will seek to stimulate economic growth.
The greenback declined earlier against the majority of its most-traded counterparts as Fed and China officials signaled they were prepared to ease monetary policy to expand economic growth. Europe’s shared currency rose as German Chancellor Angela Merkel said holding Europe together is “worth every hardship and effort” before Germany and France hold debt-crisis talks in Berlin today. Australia’s dollar fell after a report indicated manufacturing will contract at a faster pace in China, its largest trading partner.
Jobless claims are “still OK, but I think generally the Fed yesterday set the bar really high for not doing quantitative easing,” Mary Nicola, a New York-based currency strategist at BNP Paribas SA, said in a telephone interview. “The real focus is what’s happening out of Europe, what’s happening out of the Federal Open Market Committee. Those are the keys things the markets are watching right now.”
The U.S. currency fell 0.4 percent to $1.2579 per euro at 12:01 p.m. New York time, after reaching $1.2590, the least since July 4. It declined 0.1 percent to 78.47 yen. The euro was 0.3 percent stronger at 98.71 yen.
Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed today in Washington. The median forecast of 41 economists surveyed by Bloomberg called for 365,000.
Minutes of the U.S. central bank’s latest policy meeting released yesterday showed officials remain supportive of more easing as unemployment has been mired at more than 8 percent since 2009.
UBS Forecast
The greenback is likely to gain against its biggest counterparts over the longer term as central banks in Europe, Japan and the U.K. also commit to loose monetary policy, UBS AG currency strategists said today in a research note.
The firm raised its forecast for the euro to $1.25 from $1.20 in the next month and kept its call for the yen against the dollar unchanged at 78 yen during that period. The euro will decline to $1.15 in the next year “as austerity in Europe leads to prolonged loose monetary policies,” UBS said.
There’s a 50 percent chance that the Fed will announce a form of quantitative easing at their September meeting, and it’s increasingly likely for the central bank to ease further later in 2012 or next year, Rick Rieder, chief investment officer of fundamental fixed-income at New York-based BlackRock Inc. (BLK), the world’s largest money manager, said in an interview with Deirdre Bolton on Bloomberg Television’s “In The Loop.”
‘More Aggressive’
“Employment is going to take a very long time to get to the Fed’s mandate of full employment, which means they’re going to be on hold for a long time,” Rieder said. “Their comments yesterday were more aggressive than I think people would have thought.”
Chairman Ben S. Bernanke will have an opportunity to clarify his views in an Aug. 31 speech at a forum for central bankers in Jackson Hole, Wyoming, where he signaled a second round of bond buying by the Fed in 2010. Fed officials next meet on Sept. 12-13.
The U.S. central bank bought $2.3 trillion of mortgage and Treasury debt between 2008 and 2011 in two rounds of quantitative easing to cap borrowing costs. Policy makers have held the Fed’s key rate in a range of zero to 0.25 percent
A third round of asset purchases would “provide confidence to markets that we are intending to be accommodative for quite some time,” Chicago Fed President Charles Evans told reporters in Beijing today. More accommodative policies are needed around the world, from China to the U.S., he said.
Dollar Index
The Dollar Index, which IntercontinentalExchange Inc. uses to track the currency against those of six U.S. trading partners, dropped as much as 0.3 percent today to 81.284, the lowest since June 20.
The greenback remained lower even after a separate report showed purchases of new U.S. homes climbed 3.6 percent to a 372,000 annual pace, following a 359,000 rate in June that was higher than previously estimated. The median estimate of 72 economists surveyed by Bloomberg called for a rise to 365,000. The rate was the same in May, which was the strongest since April 2010.
The dollar has fallen 3.2 percent in the past month, the second-worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen posted the biggest decline, dropping 3.3 percent, while the euro climbed 1 percent.
