Dollar Falls to 16-Month Low as Bernanke Unsure When Stimulus Will Unwind
Dollar Falls to 16-Month Low Against Euro Amid Speculation
Chris Ratcliffe/Bloomberg
Euro coins and a U.S. one dollar bill are arranged for a photograph in London.
Euro coins and a U.S. one dollar bill are arranged for a photograph in London. Photographer: Chris Ratcliffe/Bloomberg
April 27 (Bloomberg) -- Axel Merk, president and chief investment officer at Merk Investments LLC, discusses the U.S. dollar and the outlook for Federal Reserve policy. Merk talks with Tom Keene on Bloomberg Television's "Midday Surveillance." (Source: Bloomberg)
April 25 (Bloomberg) -- John Roque, a managing director at WJB Capital Group Inc., discusses gold prices, the dollar and his investment strategy for the U.S. stock market. Roque talks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
April 25 (Bloomberg) -- David Kelly, chief market strategist for JPMorgan Funds, discusses quarterly earnings, the stock market and investment strategy. Kelly talks with Betty Liu and Jon Erlichman on Bloomberg Television's "In the Loop." Todd Colvin, vice president at MF Global Inc., also speaks. (Source: Bloomberg)
The dollar dropped to a 16-month low against the euro after Federal Reserve Chairman Ben S. Bernanke said in his first press conference after a policy decision that he’s unsure when monetary stimulus will unwind.
South Africa’s rand rallied against all of its most-traded counterparts after gold surged to a record as the greenback weakened. The dollar slid for a seventh consecutive day versus the euro as Bernanke said the central bank will likely continue reinvesting maturing debt after its $600 billion bond-buying program expires in June.
“His language does not provide enough to change the dollar’s downtrend,” said Jessica Hoversen, an analyst at the futures broker MF Global Holdings Ltd. in New York. “The Fed believes that accommodative policy is still necessary, long-run inflation expectations remain stable and growth fragile.”
The dollar depreciated 1 percent to $1.4786 versus the euro at 5 p.m. in New York, from $1.4644 yesterday, after touching $1.4795, the weakest level since December 2009. The U.S. currency pared its gain versus the yen, advancing 0.8 percent to 82.16 yen after earlier rising 1.5 percent. The euro advanced 1.7 percent to 121.47 yen, from 119.42.
The rand rose as much as 1.3 percent to 6.5876 versus the dollar. Gold futures advanced to a record $1,530.30 an ounce on speculation the Fed will be slow to raise borrowing costs, boosting the metal as an alternative to the dollar. Gold and platinum account for a fifth of South Africa’s exports.
Fed on Inflation
The U.S. currency dropped earlier against the euro after the Fed said in its statement that a pickup in inflation is likely to be temporary. Bernanke told reporters that the end of the Fed’s bond-buying program probably won’t have a “significant” effect on financial markets or the economy.
“Bernanke is very much staying to script,” Boris Schlossberg, director of research at the online currency trader GFT Forex in New York, said via e-mail. “The longer-term implications of the first press conference are that the Fed will remain stationary for the time being while the rest of the G-10 with the exception of Japan is moving toward a more tightening bias.”
IntercontinentalExchange’s Dollar Index, which tracks the greenback against the currencies of six major trading partners including the euro, slid 0.7 percent to 73.315 after touching 73.261, the lowest level in more than two years.
Fed policies will lead to a “strong and stable” dollar, according to Bernanke, who said the U.S. currency still has “high standing” in the world.
Bernanke on Dollar
“Ultimately the best thing we can do to create strong fundamentals for the dollar in the medium term is first keep inflation low, which maintains the buying power of the dollar, and second create a stronger economy,” Bernanke said.
The U.S. economy grew at a 2 percent annual pace in the first quarter after a 3.1 percent rate of expansion in the last three months of 2010, according to the median forecast of 80 economists in a Bloomberg News survey before tomorrow’s report from the Commerce Department.
The central bank held its target rate for overnight lending between banks at zero to 0.25 percent, as forecast by all of the 84 economists in a Bloomberg News survey. The benchmark has stayed at that level since December 2008.
The Australian dollar touched a record on speculation the Reserve Bank of Australia will raise borrowing costs to contain accelerating inflation.
Australian Inflation
The consumer price index gained 1.6 percent in the three months ended March 31, the most since June 2006, the Bureau of Statistics said today. The median forecast of 26 economists in a Bloomberg News survey was for a 1.2 percent gain.
The Aussie rose as much as 0.9 percent to $1.0879, the highest level since the currency was freely floated in 1983. The New Zealand dollar advanced as much as 0.6 percent to 81.08 U.S. cents, the strongest level since March 2008.
South Korea’s won appreciated as much as 0.9 percent to $1,078.45 versus the dollar in its biggest intraday gain in a week. A Bank of Korea report showed gross domestic product increased 1.4 percent in the first quarter after a 0.5 percent gain in the last three months of 2010.
The outlook on Japan’s AA- local-currency government debt rating, the fourth-highest grade, was lowered to “negative” from “stable,” S&P said today, citing costs for rebuilding after the nation’s record earthquake on March 11.
Bank of Japan Governor Masaaki Shirakawa signaled on April 25 that the central bank may expand a lending program aimed at bolstering growth industries.
Weaker Yen
The yen has weakened 5.2 percent over the past month in the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The dollar has declined 4.6 percent.
The euro rose earlier against the greenback after a report showed European industrial orders gained for a fifth consecutive month in February.
Aiming to keep annual inflation below 2 percent, the European Central Bank raised its main refinancing rate this month by a quarter-percentage point to 1.25 percent. It left the door open for more increases even as nations such as Greece, Ireland and Portugal struggle to contain sovereign-debt turmoil.
Greek two-year yields rose above 25 percent for the first time, while 10-year bond yields advanced to euro-era highs for a ninth consecutive day. Greece isn’t considering restructuring, said an e-mail message from a Finance Ministry press officer, who cited government policy in asking not to be identified.
To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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