Dollar Drops Most in Four Weeks as Fed to Pump Money into Financial System
Dollar Drops Most in Four Weeks
Hannelore Foerster/Bloomberg
The greenback slid versus 15 of its 16 major counterparts after the Fed said it will buy $600 billion of U.S. Treasuries through June.
The greenback slid versus 15 of its 16 major counterparts after the Fed said it will buy $600 billion of U.S. Treasuries through June. Photographer: Hannelore Foerster/Bloomberg
The dollar fell the most in four weeks against the currencies of six major trading partners after the Federal Reserve said it will pump more money into the U.S. financial system to spur inflation and employment.
The greenback slid versus 15 of its 16 major counterparts after the Fed said it will buy $600 billion of U.S. Treasuries through June. It pared losses after data yesterday showed payrolls grew more than forecast. The Australian and Canadian currencies reached parity with the dollar as investor appetite for higher-yielding assets rose before leaders of the Group of 20 nations discuss currency policy in Seoul next week.
“The global market dynamic is still supporting dollar weakness,” said Sacha Tihanyi, a currency strategist at Bank of Nova Scotia in Toronto, Canada’s third-largest lender. “The Federal Reserve’s statement may be favorable for the U.S. economy, but it’s unfavorable for the U.S. dollar.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners including the euro and yen, slid 0.9 percent to 76.548, from 77.266 on Oct. 29, in the biggest weekly loss since Oct. 8. It touched 75.631 on Nov. 4, the lowest level since Dec. 8, 2009.
The policy-setting Federal Open Market Committee said Nov. 3 it will buy about $75 billion a month in Treasuries through mid-2011 in a strategy called quantitative easing. The Bank of Japan left monetary policy unchanged this week, keeping its interest rates the lowest in the world, as the yen fell versus all 16 major currencies.
European Exit Strategy
European Central Bank President Jean-Claude Trichet signaled Nov. 4 policy makers aim to pursue their strategy to end emergency stimulus, sending the euro to a nine-month high against the dollar and a one-month high versus the yen.
Fed Chairman Ben S. Bernanke said yesterday an acceleration in U.S. economic growth would support the value of the U.S. dollar compared with other currencies. The Fed’s asset-purchase plan is targeted at bringing about a more rapid U.S. recovery, he said in response to questions from college students in Jacksonville, Florida.
“The best fundamentals for the dollar will come when the economy is growing strongly,” Bernanke said. “A strong U.S. economy is critical not just for Americans but for a global recovery,” he added.
The dollar fell the most in four weeks against the euro, depreciating 0.6 percent to $1.4032, from $1.3947 on Oct. 29. It touched $1.4282 on Nov. 4, the weakest since Jan. 20.
The greenback climbed 1.1 percent to 81.26 yen, gaining for the first time in seven weeks, even as it touched a 15-year low versus the Japanese currency, 80.22 yen, on Nov. 1. The yen weakened 1.7 percent, its biggest weekly drop since mid- September, to 114.03 per euro, from 112.12 on Oct. 29.
Budget Deficits
The euro gave back gains yesterday as weak economic data revived concern that so-called peripheral countries will struggle to plug budget deficits. Data showed retail sales in the euro region fell 0.2 percent in September and the Spanish economy stagnated in the third quarter.
The U.S. currency rose yesterday after data showed U.S. employers hired more workers than forecast in October, increasing payrolls for the first time since May. The economy added 151,000 jobs, Labor Department figures showed, compared with the median forecast in a Bloomberg News survey for a 60,000-position gain. The jobless rate held at 9.6 percent.
‘More Room to Decline’
“The dollar probably hasn’t found the bottom yet,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “The Australian dollar, the kiwi, emerging-market currencies, higher-yielding currencies in general: the dollar still has more room to decline against that group.”
Australia’s dollar closed above parity with the greenback for three straight days as investors bet the nation will increase interest rates after the U.S. left borrowing costs near zero. It climbed 3.3 percent for the week, the most since July, to $1.0159. The New Zealand dollar, called the kiwi, climbed 3.8 percent, the most since May 2009, to 79.55 U.S. cents.
The Canadian dollar was worth more than its U.S. counterpart yesterday for the first time since Oct. 14 after reports showing that each of the nations’ economies added jobs last month bolstered global growth optimism. The currency gained 1.9 percent, the biggest weekly jump in three months, to C$1.0001 per U.S. dollar.
China said the Fed needs to further explain its decision to pump money into the world’s biggest economy or risk undermining the global recovery.
‘Many Countries’ Worried
“Many countries are worried about the impact of the policy on their economies,” Vice Foreign Minister Cui Tiankai said at a press briefing in Beijing yesterday in remarks that echoed concerns raised across Asia as countries brace themselves for stronger currencies.
South Korean President Lee Myung Bak said he expects Group of 20 leaders including the Chinese to agree on “guidelines” for currency policy when they meet in Seoul on Nov. 11-12.
“I believe leaders will be able to reach some kind of agreement,” Lee told reporters in Seoul. “I expect positive cooperation from President Hu Jintao at the leaders’ summit.” Hu is China’s president.
The G-20 summit may be the biggest driver in the currency market next week because there are no important economic reports being released, said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York.
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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