Dollar Slumps Against Yen, Euro on Speculation Federal Reserve Will Ease
Dollar Weakens Asian Stock Advance
Daniel Acker/Bloomberg
The dollar declined to $1.3814 per euro as of 9:51 a.m. in Tokyo from $1.3769 in New York yesterday, when it climbed to $1.3734, the highest level since Oct. 20.
The dollar declined to $1.3814 per euro as of 9:51 a.m. in Tokyo from $1.3769 in New York yesterday, when it climbed to $1.3734, the highest level since Oct. 20. Photographer: Daniel Acker/Bloomberg
Oct. 28 (Bloomberg) -- John Taylor, chairman and founder of FX Concepts Inc., discusses the outlook for currency markets. Taylor, speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," says another round of quantitative easing is mostly priced into the market and that the U.S. dollar will weaken through the end of November before recovering. (Source: Bloomberg)
The dollar fell against all of its most-traded counterparts on renewed demand for higher-returning assets as traders speculated the Federal Reserve will debase the currency by buying government debt.
The U.S. currency dropped for the first time in three days against the euro as Treasury notes rose after policy makers asked dealers for projections of asset purchases over the next six months. The dollar is on the “strong side” relative to U.S. economic performance, the International Monetary Fund said in a report to Group of 20 nations.
“The market knows one main way how to trade, which is short dollar, long risk,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “For now, it has not been significantly shaken out of its assumption.” A short is a bet a currency will decline.
The dollar depreciated 1.2 percent to $1.3930 per euro at 5 p.m. in New York, from $1.3769 yesterday. The U.S. currency fell 0.9 percent to 81.03 yen, from 81.75 yen, after touching the 15- year low of 80.41 yen on Oct. 25. The euro gained 0.3 percent to 112.87 yen, from 112.58 yen.
The euro extended its advance as automatic orders were activated to stop losses for investors betting on a dollar rally, according to Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York.
Stop orders were clustered above $1.38, $1.3850 and $1.39 per euro, Franulovich said. The next orders may be at $1.3980, he said. Traders place buy and sell orders at predetermined prices to limit losses.
Treasury Yield
The yield on the 10-year Treasury note fell 0.06 percentage point to 2.66 percent. Stocks pared gains, with the Standard & Poor’s 500 Index rising 0.1 percent.
The Dollar Index, which tracks the greenback against currencies of six major U.S. trading partners, decreased 1.1 percent to 77.285. It touched 78.273 yesterday, the highest level since Oct. 20.
A New York Fed survey, obtained by Bloomberg News, asked investors and dealers about their expectations for the initial size of any new program of debt purchases and the time over which it would be completed.
Estimates for the size of the asset-purchase program include forecasts for $1 trillion by Bank of America-Merrill Lynch and $2 trillion by Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after its Nov. 2-3 meeting.
The central bank is likely to announce a program of bond purchases worth a few hundred billion dollars over several months, the Wall Street Journal reported this week, without saying where it obtained the information.
Goldman Sachs View
Goldman Sachs reiterated in a research note its forecast for a further 5 percent drop in the dollar “on a broad, trade- weighted basis” over the next 12 months.
“The dollar needs to fall a lot further -- even after recent declines -- to contribute to raising inflation towards the Fed’s desired level,” Robin Brooks and Roman Maranets, currency strategists at Goldman Sachs in New York, wrote in a research note.
The Bank of Japan signaled concern that U.S. easing will cause its currency to appreciate by bringing forward the date of its next policy meeting to follow next week’s Fed decision.
“The Japanese have themselves a very difficult problem,” said John Taylor, chairman and founder of FX Concepts LLC, in an interview with Erik Schatzker on Bloomberg Television’s “Inside Track” program. “You’re hearing the major exporters from Japan make comments about what kind of levels they can tolerate, and we’re also seeing them act in the market and prepare themselves for a stronger yen.”
Japan’s Intervention
Japan’s currency has appreciated more than 5 percent since authorities acknowledged on Sept. 15 intervening for the first time in six years to help exporters by selling the yen.
The yen has gained 3.1 percent in October in the biggest increase against the dollar among the 16-most traded currencies tracked by Bloomberg. Brazil’s real has dropped the most this month, falling 1 percent to 1.7042 as the government raised taxes on foreigners’ fixed-income purchases.
China’s yuan fell to its weakest level this month after the central bank set a lower reference rate for a third day, spurring speculation the government is limiting appreciation. The People’s Bank of China set the reference rate 0.11 percent weaker at 6.6986 against the greenback.
The yuan has depreciated 0.5 percent since G-20 policy makers said on Oct. 23 that they would refrain from “competitive devaluation” before the Nov. 11-12 leaders’ summit.
The euro, yen and pound “all appear broadly in line with medium-term fundamentals,” the IMF said in its report. Emerging economies with current-account surpluses need to begin to allow exchange-rate appreciation “in earnest” to play their part in rebalancing global demand, according to the IMF.
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
Rate this Page