Dollar Falls as Fed Statement on Recovery Fuels Asset-Buying Speculation
The dollar declined to a 15-year low against the yen and fell the most versus the euro since July as a Federal Reserve regional survey showed the economy expanded in September at a “modest pace.”
The greenback slid against all of its major counterparts except Taiwan’s dollar as traders speculated that the central bank will increase purchases of government debt to support the economy. The Australian and Canadian dollars and the Norwegian krone rallied as commodities gained.
“It’s a relatively soft report and reinforces the need for the Fed to increase stimulus in November,” said Kathy Lien, director of currency research at the online trader GFT Forex in New York. “It reinforces the theme in the market that’s driving the dollar lower.”
The dollar fell 0.6 percent to 81.09 yen at 5 p.m. in New York, from 81.58 yesterday, after declining to 80.85, the lowest level since April 1995, when the post-World War II low of 79.75 was set. The dollar slid 1.7 percent to $1.3964 per euro, from $1.3727 yesterday, after falling 1.9 percent in the biggest intraday drop since July 1. The euro gained 1.1 percent to 113.31 yen, from 112 yen.
Canada’s currency rose for the first time in five days, adding 1.2 percent to C$1.0210 per U.S. dollar as a gain in stocks and raw materials indicated demand for assets related to economic growth. The loonie has dropped 1.7 percent since trading stronger than parity with the greenback on Oct. 14 for the first time since April.
Gain in Stocks
U.S. stocks rose, pushing the Standard & Poor’s 500 Index up 1.1 percent. Crude oil for November delivery increased 2.9 percent to $81.77 a barrel.
Australia’s dollar gained 1.9 percent to 98.71 U.S. cents after touching 96.62 cents yesterday, the lowest level since Oct. 5. It reached parity with the greenback on Oct. 15 for the first time since exchange controls were removed in 1983. Norway’s krone appreciated 2 percent to 5.8265 per dollar.
The euro was supported versus the dollar as Germany’s Chancellor Angela Merkel said in Berlin that governments must find an “exit strategy” from stimulus spending as the global financial crisis recedes.
The 16-nation currency gained against the Swiss franc for the first time in four days, rising 0.7 percent to 1.3429.
The euro may erase a one-month rally against the franc if it falls below support and forms a head-and-shoulders pattern, according to Barclays Plc.
Euro Versus Franc
A drop in the euro below 1.3260 Swiss francs would push the euro down toward 1.3165 and 1.3070, Barclays analysts led by Jordan Kotick in New York wrote in a research note to clients today. The franc has fallen 2.7 since Sept. 15, a day before the Swiss National Bank cut its inflation outlook.
A head-and-shoulders pattern is formed by three consecutive peaks on a chart, with the middle being the highest. A breach of a neckline connecting the base of the three peaks, also a support level, may signal the reversal of a trend.
Taiwan’s dollar was the only currency to fall among the greenback’s 16 major counterparts tracked by Bloomberg. The currency slid 0.1 percent to NT$30.88 versus the U.S. dollar a day after China’s first interest-rate increase since 2007 dimmed the island’s outlook for exports.
The currency has increased 2.5 percent in the past month as near-zero interest rates in the U.S. attracted investors to emerging markets such as Taiwan.
The yen traded stronger than 82.88 per dollar, where it traded on Sept. 15 when Japan acknowledged selling the currency to help its export-dependent economy.
Dollar Index
The Dollar Index, used by IntercontinentalExchange Inc. to track the greenback against the currencies of six major U.S. trading partners, fell 1.4 percent to 77.13. It gained 1.6 percent yesterday as China’s increase in borrowing costs damped demand for assets related to economic growth.
The dollar remained lower as the Fed said today in its Beige Book business survey by the 12 regional banks that 8 of them, including San Francisco and Chicago, reported some form of growth. The Philadelphia and Richmond Feds said their economies were “mixed” while the Cleveland region “held steady” and the Atlanta district “remained slow.”
Federal Reserve Bank of Richmond President Jeffrey Lacker said a new round of asset purchases by the central bank “would be a hard case to make” with economic growth in line with his outlook.
The Beige Book report released by the Fed today shows “what I expected several months ago,” which is an economic expansion of about 2 percent during the second half, Lacker told reporters in College Park, Maryland. He said he would make up his mind on monetary policy when Fed officials meet in two weeks.
Inflation Concern
Concerns that inflation will accelerate and the U.S. economy will weaken are among the reasons for declines in the dollar, Charles Plosser, president of the Philadelphia Fed, said in response to questions after a speech today in Philadelphia.
The dollar extended its drop earlier today on speculation a report by Medley Global Advisors, a consulting firm used by hedge funds, said the central bank will buy back more assets than expected. Hannah Little, a spokeswoman at Medley, declined to comment.
“There’s a report out that suggests that we might see far greater quantitative easing,” said John McCarthy, director of currency trading at ING Groep NV in New York. “That in essence caused the dollar to sell off.”
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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