Dollar Falls Before Federal Reserve Reveals Interest-Rate Stance, Actions
The dollar declined against the euro and the yen before a Federal Reserve meeting where policy makers may set the stage for additional steps to boost the economy.
Japan’s currency weakened against the euro as housing starts in the U.S. rose more than forecast in August, easing concern the recovery is faltering and boosting appetite for higher-yielding assets. The euro rallied versus the greenback to nearly a six-week high after investors bought the maximum amounts offered at Spanish and Irish debt sales, reducing concern the region’s sovereign debt crisis will worsen. The Australian dollar reached its highest level since July 2008.
“There is little momentum in the economy at this point,” Michael Cloherty, head of U.S. rates strategy for fixed income and currencies at the primary dealer Royal Bank of Canada in New York, wrote in a note to clients. “But unless Bernanke gave us a half-baked view in Jackson Hole, it’s not about the unemployment rate or growth in general. It’s about inflation. Specifically, if deflation risks rise meaningfully, that would set another round of QE in motion.”
The dollar fell 0.5 percent to 1.3129 per euro as of 1:37 p.m. in New York, from 1.3061 yesterday. The yen weakened 0.1 percent to 112.04 euro from 111.93 and strengthened 0.4 percent to 85.32 against the dollar from 85.69.
Fed Moves
A survey by Jersey, City, New Jersey-based Ried Thunberg found that 57 percent don’t expect the Fed to announce additional asset purchases, while 43 percent expect policy makers to say they’re resuming quantitative easing.
The Fed will keep its benchmark rate in a range of zero and 0.25 percent at today’s meeting, where it has been since December 2008, a Bloomberg News survey showed. Fifty-four of 63 economists surveyed said the central bank will leave unchanged a sentence saying high unemployment and low inflation warrant “exceptionally low” rates.
U.S. builders broke ground on 598,000 homes at an annual rate, up 10.5 percent and the most since April, following a 541,000 pace in July, the Commerce Department said today in Washington. Housing starts were forecast to rise 0.7 percent to 550,000, according to the median estimate of 74 economists in a Bloomberg survey.
Behind the Numbers
“They were surprisingly good numbers,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “Dollar-yen had moved a little bit lower overnight, but has since gotten a boost. At the same time, it seems to be more risk-on.”
Ireland sold 1.5 billion euros ($1.97 billion) in a bond auction, the National Treasury Management Agency said today. Spain sold 7 billion euros of 12-month and 18-month bills, the maximum target, the Bank of Spain said. Greece sold 390 million euros of 13-week Treasury bills at a yield of 3.98 percent, the Athens-based Public Debt Management Agency said.
“European developments are helping the euro today,” Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, wrote in a note to clients. The euro is boosted as “debt market concerns ease after successful government debt auctions today.”
The Swiss franc weakened against the euro after the European bond auctions sapped demand for the currency’s relative safety.
The franc fell 0.6 percent against the euro to 1.3201, from $1.3125.
Aussie Gains
Australia’s currency declined 0.1 percent at 94.62 U.S. cents, from 94.72 cents yesterday. It touched 95.02 cents, the strongest level since July 2008.
Reserve Bank of Australia policy makers signaled they may need to raise interest rates given the pace of the nation’s economic expansion.
The yuan climbed to the highest level since 1993 after President Barack Obama criticized China for not letting it strengthen. It advanced before scheduled talks between Obama and Chinese Premier Wen Jiabao at this week’s United Nations General Assembly in New York.
China’s leaders haven’t done “everything they said would be done” to allow appreciation, Obama said yesterday at an hour-long town hall discussion in Washington.
Yuan Gains
The yuan gained 0.1 percent to 6.7061 per dollar, according to the China Foreign Exchange Trading System.
The yen advanced against the dollar as concern that Japanese officials would resume selling it eased.
Japan intervened in foreign exchange markets on Sept. 15 for the first time since 2004 to protect its exporters after the yen rose to a 15-year high against the dollar. While that helped the currency slump 3.3 percent on the day, it has climbed 0.3 percent since then.
The Canadian dollar weakened against the greenback after a report showed inflation in August unexpectedly fell, raising speculation that the Bank of Canada will pause in its cycle of interest-rate increases when policy makers meet next month.
The consumer price index fell 0.1 percent in August, and rose 1.7 percent from a year ago following July’s 1.8 percent gain, Statistics Canada reported.
The loonie, as the Canadian currency is known, depreciated 0.2 percent to C$1.0307 per U.S. dollar from C$1.0282 yesterday.
To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net.
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