Dollar Falls on Speculation Fed Will Keep Stimulus as Debt Purchases End

The dollar dropped against a majority of its most-traded counterparts on speculation the Federal Reserve will maintain monetary stimulus without buying more debt as economic growth remains sluggish.

The greenback touched a one-week low versus the euro before the Fed issues a statement after a two-day meeting and Chairman Ben S. Bernanke gives a press conference. The pound fell for the first time in four days against the greenback as minutes of the last Bank of England meeting showed some officials saw a risk more bond purchases may be required.

“The market is pre-positioned for the Fed in part based on the history that the Fed has tended to be quite supportive of equities and negative for the dollar,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York.

The dollar dropped 0.2 percent to 80.06 yen at 11:27 a.m. in New York, from 80.21 yesterday. It fell 0.1 percent to $1.4429 per euro and touched $1.4442, the weakest level since June 15, after gaining 0.5 percent earlier. The euro was little changed at 115.51 yen.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major trading partners, was little changed at 74.531 after earlier gaining as much as 0.4 percent.

The central bank’s second round of quantitative easing, the purchase of $600 billion of Treasuries, is scheduled to end this month. The benchmark interest rate has been kept at zero to 0.25 percent since December 2008 to support the economy.

Fourth Quarter

Seventy-nine percent of 58 economists expect Bernanke to sustain the Fed balance sheet at current levels until October or later, compared with 52 percent who held that view before the Fed’s last policy meeting in April, according to a Bloomberg News survey conducted last week. Ninety percent of those surveyed predict the Fed will wait until the fourth quarter before dropping its pledge to hold interest rates low for an “extended period.”

Bernanke and his colleagues have given no indication they’ll tighten policy any time soon. With manufacturing slowing and unemployment increasing during May to 9.1 percent, the Fed chairman said on June 7 growth is “frustratingly slow.”

The dollar dropped 1 percent against the euro on April 27, after Bernanke said following the Fed’s last meeting he was unsure when monetary stimulus would unwind, spurring investors to buy higher-yielding assets.

To contact the reporters 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