Dollar Drops to Lowest Level Since March as Fed Hints at Easing
The dollar slid to the lowest level in six months versus a basket of currencies including the euro and yen on speculation the Federal Reserve’s willingness to ease monetary policy further will damp demand for U.S. assets.
The greenback weakened after U.S. policy makers said yesterday that they “will provide additional accommodation if needed” to spur growth. The euro rose for a third day versus the dollar as Portugal sold 750 million euros ($1 billion) of bonds and investors bought the maximum amounts at Spanish and Irish debt sales yesterday.
“The likelihood of more Fed easing has clearly increased, and that’s hurting the dollar,” said Stephan Maier, a foreign- exchange strategist at UniCredit SpA in Milan. “The market may be getting ahead of itself, anticipating too much easing.”
The dollar slid 0.9 percent to $1.3382 per euro at 7:47 a.m. in New York, from $1.3264 yesterday, after reaching $1.3396, the weakest level since April 27. The U.S. currency dropped 0.6 percent to 84.62 yen, from 85.09. The euro climbed 0.3 percent to 113.24 yen, from 112.87.
Declines in the U.S. currency accelerated after InterContinentalExchange Inc.’s Dollar Index fell below 80 for the first time since March 18, sparking some traders to unwind bets on a gain, according to Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.
The gauge of the greenback against the currencies of six major trading partners including the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona fell 0.8 percent to 79.837 after touching 79.719, the lowest since March 17.
The dollar fell to 98.73 against the Swiss franc, the lowest level since March 2008. The franc traded at 1.3243 versus the euro.
The Federal Open Market Committee said in a statement after its meeting yesterday in Washington that “inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate.”
“The dollar weakness is due to concerns on the quality of the Fed’s balance sheet,” said David Deddouche, a foreign- exchange strategist at Societe Generale SA in Paris. The U.S. currency may decline to $1.35 per euro within a week, according to Deddouche.
Futures on the Standard & Poor’s 500 Index fell 0.2 percent. Gold for December delivery touched the all-time high of $1,296.50 an ounce.
The euro rose for a third day against the dollar as investors bid for 3.5 times the amount of securities maturing in October 2014 offered by Portugal’s debt agency, compared with 3.1 times in July.
Portugal also sold 300 million euros of bonds due in June 2020, leaving the total for the auction at the low end of the range of 750 million euros to 1 billion euros set for the sale.
Ireland sold 1.5 billion euros of debt yesterday, the National Treasury Management Agency said. Spain sold 7 billion euros of 12- and 18-month bills, the maximum target, the Bank of Spain said.
The auction results “suggest that concerns are abating,” Steven Englander, New York-based head of Group of 10 currency strategy at Citigroup Inc., wrote in a note yesterday.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 9,644 on Sept. 14 compared with net shorts of 23,699 a week earlier, data from the Commodity Futures Trading Commission showed on Sept. 17.
Demand for the yen may have been tempered by speculation Japan will sell its currency again after intervening in the foreign-exchange market on Sept. 15 for the first time in more than six years. The yen has risen about 1 percent since the intervention pushed the currency down to a one-month low from a 15-year high.
The central bank is monitoring the yen’s strength, which is an impediment to the nation’s economic recovery, a Bank of Japan board member, Ryuzo Miyao, said today. He also said the bank plans to take appropriate credit-easing steps if needed.
Prime Minister Naoto Kan said Japan should put in place economic and monetary policies to weaken the yen, the Financial Times reported today, citing an interview.
“This is the pivotal area for dollar-yen,” said Matthew Brady, executive director for foreign exchange at JPMorgan Chase & Co. in Sydney. “This is the area where there was intervention last week and the market will maybe put a line through the sand around 84.80 yen.”
The New Zealand dollar rose before a report tomorrow that economists said will show the nation’s economic growth accelerated. The kiwi gained 0.5 percent to 73.84 U.S. cents.
Norway’s krone slipped 0.3 percent to 7.9285 per euro before the nation’s central bank decides on borrowing costs. Norges Bank will keep its target rate at 2 percent at 2 p.m. in Oslo, according to all 14 economists in a Bloomberg News survey.
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