BLBG:Dollar Falls Toward Two-Week Low Versus Yen Before Fed Decision
The dollar fell toward a two-week low against the yen before the Federal Reserve announces today whether it will slow its $85 billion of monthly asset purchases that have capped borrowing costs.
The U.S. currency was about 0.2 percent from the least in three weeks versus the euro as economists surveyed by Bloomberg News predict the central bank will reduce Treasury purchases to $40 billion, while continuing to buy $40 billion of mortgage-backed securities. The pound rose against all of its 16 major counterparts after central-bank minutes showed policy makers saw no need for more stimulus. Sweden’s krona advanced.
“If they do go with tapering, and my gut feeling is they will, it will be offset by a number of mitigating observations,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “The knee-jerk reaction will be for a stronger dollar. If they then throw in cushioning language I think the dollar might resume its downtrend again.”
The dollar dropped 0.3 percent to 98.88 yen at 10:05 a.m. in London after falling to 98.46 yen on Sept. 16, the lowest level since Sept. 2. The U.S. currency was little changed at $1.3355 per euro. The yen rose 0.3 percent to 132.04 per euro.
The Bloomberg U.S. Dollar Index, which tracks the greenback against a basket of 10 major currencies, dropped 0.1 percent to 1,018.95 after falling to 1,017.30 on Sept. 16, the lowest level since Aug. 12.
Fed Purchases
Among 64 economists surveyed by Bloomberg News, 33 predict the Fed will reduce its purchases of Treasuries by $5 billion or less, with 31 forecasting a cut of $10 billion or more.
“I anticipate that we’ll see the dollar strengthen in the event that we get at least $10 billion worth of tapering,” said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Singapore. “If we were to get less than $10 billion, that would certainly throw some doubt over whether the Fed is seriously going to persist with tapering and end their purchases, and we’ll see the dollar weaken on that.”
Fed policy makers have pledged to keep the benchmark interest rate near zero at least as long as unemployment exceeds 6.5 percent and the outlook for inflation is no more than 2.5 percent. The central bank will release its 2016 economic projections today, including the outlook for the benchmark rate.
The dollar has declined 0.6 percent in the past week, the second-worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 0.3 percent and the yen gained 0.6 percent.
Pound Gains
The pound rose to an eight-month high versus the dollar as Bank of England minutes showed policy makers voted unanimously to keep policy unchanged this month.
Sterling strengthened for a fourth day as the minutes of the Sept. 3-4 meeting showed “no member judged that further stimulus was appropriate at present.” The minutes also showed the panel voted 9-0 to keep the bond-purchase program at 375 billion pounds ($599 billion).
The pound gained 0.4 percent to $1.5968 after rising to $1.5971, the highest level since Jan. 18.
The krona strengthened for a third day versus the euro as Sweden’s central bank said policy makers held its benchmark interest rate unchanged amid concern another reduction may stoke debt growth and risk economic developments.
The majority of the board “noted that although a lower repo-rate path could lead to inflation attaining the target slightly sooner, it could also increase indebtedness and thus the risks to economic development in the longer run,” the central bank said in a statement today.
The krona gained 0.2 percent to 8.6223 per euro and rose 0.1 percent to 6.4596 per dollar.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
