BLBG:Yen Falls Versus Dollar Before Fed Meeting; Euro Drops on Draghi
The yen weakened for a second day against the dollar before the Federal Reserve starts a two-day meeting today that may provide more information about when the central bank will start to reduce bond purchases.
The yen dropped against most of its major peers after a Bank of Japan report showed the current-account balance will rise to a record amid unprecedented monetary stimulus. The euro weakened versus the dollar after European Central Bank President Mario Draghi said policy maker are considering further non-standard monetary policy tools and will deploy them if circumstances warrant. The Australian dollar fell after the Reserve Bank indicated the currency may weaken further.
“Tapering of quantitative easing would mean the Fed has confidence in the U.S. economy,” said Noriaki Murao, managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “There’s a good chance we’ll go back to a weak-yen, strong-dollar market because of the difference in monetary policy between the U.S. and Japan.”
The yen fell 0.5 percent to 94.98 per dollar at 8:25 a.m. in London after declining 0.2 percent yesterday. Japan’s currency weakened 0.3 percent to 126.73 per euro. The euro dropped 0.2 percent to $1.3343.
The JPMorgan Global FX Volatility Index increased 0.3 percentage point to 10.28 percent after climbing to a one-year high of 11.43 percent on June 13. The average in the past 12 months is 8.65 percent.
Fed Purchases
Fed Chairman Ben S. Bernanke said last month the central bank could reduce its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage-backed securities if the employment outlook shows sustained improvement.
Bernanke is “likely to remain vague” at a press conference this week about the Fed’s future exit strategy or a tapering of asset purchases, Joseph Capurso, a currency strategist at Commonwealth Bank of Australia (CBA) in Sydney, wrote today in a note to clients.
“Market participants are uncertain about the outlook for extraordinary policy support being provided by the Federal Reserve and the Bank of Japan,” he wrote. “Hedgers such as real money managers and corporates may consider taking cover against the risk of heightened volatility.”
The BOJ estimated today its current-account balance, a measure of financial firms’ deposits at the central bank, will rise to a record 75.5 trillion yen.
The yen has fallen 6.9 percent this year, the worst performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 3 percent and the euro had the biggest gain, advancing 4.2 percent.
Euro Weakens
The euro fell for the second time in three days versus the dollar as Draghi’s comments fueled speculation the ECB will employ additional easing measures that debase a currency to help the region emerge from recession.
“We will look with an open mind at these measures that are especially effective in our institutional setup and that fall within our mandate,” Draghi said in a speech in Jerusalem. “Some of those measures may have unintended consequences. This does not mean that they should not be used, but it does mean that we need to be aware of those consequences and manage them appropriately.”
Draghi has in recent months held out the possibility of charging lenders to hold cash at the ECB by introducing a negative deposit rate. That’s one of a range of tools, including further long-term lending operations and adjusting the collateral framework, that the ECB is mulling as the 17-nation euro area remains stuck in its longest-ever recession.
Aussie Declines
The Aussie slid against all its 16 major counterparts after minutes from this month’s Reserve Bank of Australia meeting showed policy makers see room to ease borrowing costs further.
“The interpretation by the markets is the RBA is giving the green light for the Aussie to go lower,” said David de Garis, a senior economist at National Australia Bank Ltd. in Melbourne. “Positioning in the Aussie has been excessively short, so it’s probably got some support on the downside.” A short position is a bet an asset will decline.
Australia’s currency weakened 0.8 percent to 94.71 U.S. cents after declining 0.3 percent yesterday.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Neal Armstrong in London at narmstrong8@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
