Dollar Declines as Gain in Stocks on Fed Outlook Revives Demand for Risk
The dollar erased its increase versus a basket of currencies including the euro and yen as an advance in stocks on the prospect of more easing by the Federal Reserve revived demand for assets related to economic growth.
The yen rose against most of its major counterparts on bets Japan will refrain from intervening to weaken its currency before this week’s meeting of policy makers from Group of 20 nations. The Canadian dollar fell against the greenback on speculation the Bank of Canada will refrain from increasing the 1 percent target lending rate tomorrow.
“The dollar in general has given up a bunch of its overnight gains across the board and against the euro on a reversal in risk sentiment,” said John Doyle, a strategist in Washington at the currency-trading firm Tempus Consulting Inc. “We still have quantitative easing. That’s going to continue to weigh on the dollar.”
The U.S. currency traded at $1.3979 per euro at 4:15 p.m. in New York, compared with $1.3977 on Oct. 15, when it reached $1.4159, the weakest level since Jan. 26. The euro slid 0.20 percent to 113.62 yen, from 113.88, after touching 112.41, the lowest level since Sept. 24. The yen gained 0.3 percent to 81.21 per dollar, from 81.45. It touched 80.88 on Oct. 15, the strongest level since April 1995.
Stocks gained, pushing the Standard & Poor’s 500 Index up 0.7 percent. Crude oil for November delivery rose 2.4 percent to $83.20 a barrel.
‘Stocks and Oil’
“The move today to U.S. dollar weakness seems to be a correlated move with stocks and oil,” said Sacha Tihanyi, a currency strategist at Bank of Nova Scotia in Toronto.]
The Australian dollar was near its strongest level since exchange controls were removed in 1983 as gold traded near a record. The Aussie gained 0.3 percent to 99.39 U.S. cents after rising to parity for the first time on Oct. 15.
Canada’s dollar slid as all 18 economists in a Bloomberg News survey predicted that the Bank of Canada will leave the target lending rate at 1 percent.
The loonie dropped as much as 1.2 percent to C$1.0228 per U.S. dollar, matching an intraday decline on Sept. 7. It touched a level stronger than parity on Oct. 14.
Brazil’s real slid 0.5 percent to 1.6740 versus the dollar after the central bank president, Henrique Meirelles, told reporters that the government is considering new measures to stem the currency’s rally.
‘Currency War’
Developing countries are intervening in currency markets to protect their economies against massive inflows of dollars in what Brazil’s Finance Minister Guido Mantega has called a “currency war.” The real has appreciated 4.3 percent against the dollar this year.
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against currencies including the euro, yen and pound, fell less than 0.1 percent to 76.997 after earlier advancing 0.8 percent. It touched 76.144 on Oct. 15, the lowest level since Dec. 11.
The gauge of the greenback has dropped 4.3 percent since Sept. 21, when the Fed said in a statement following its policy meeting that it’s prepared “to provide additional accommodation if needed” to support the recovery.
Futures traders decreased their bets that the euro will gain against the dollar in the week through Oct. 12, figures from the Washington-based Commodity Futures Trading Commission showed Oct. 15. The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 41,511, compared with 48,243 a week earlier, the highest amount since October 2009.
‘Built Significantly’
“The short dollar positions have been built significantly over the past weeks,” said Robert Lynch, head of currency strategy at HSBC Holdings Plc in New York. “Given the lopsidedness in the positions and the fact that it seems the market is now more fully pricing in the possibility for some level of quantitative easing from the Fed, the idea that that’s going to take the dollar even lower may be losing some of its appeal.”
The yen remained stronger than 82.88 per dollar, where it traded on Sept. 15, when Japan acknowledged selling the currency to help its export-dependent economy.
Japan’s currency has gained 84 percent against a basket of the most-traded currencies since the start of 1986, including a 13 percent gain in 2010. The nation posted a surplus every year in its current account, the broadest measure of trade.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; 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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