Dollar Near One-Month Low Versus Euro as Fed Extends Rate Pledge to 2014

The dollar traded near its weakest level in one month against the euro after the Federal Reserve extended its pledge to keep interest rates low until late 2014.

The yen held a three-day loss against the 17-nation currency on prospects Asian stocks will extend gains in U.S. equities, reducing demand for haven assets. Strength in the euro was limited after the European Central Bank was said to oppose restructuring its Greek bonds. New Zealand’s dollar halted a four-day advance after Reserve Bank Governor Alan Bollard signaled interest rates may stay at a record low for longer than he intended a month ago.

“The Fed’s pledge for a prolonged easing of monetary policy boosted risk-on sentiment,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank by market value. “Dollar selling is likely to continue across the board, and the bias is for the yen to be weaker too.”

The dollar traded at $1.3112 per euro as of 8:31 a.m. in Tokyo from $1.3106 in New York yesterday, when it dropped to $1.3121, the lowest level since Dec. 21.

Japan’s currency dropped to 101.98 yen per euro, the weakest since Dec. 26, before trading little changed at 101.93. The yen was at 77.76 per dollar from 77.78 yesterday, when it reached 78.28, the weakest since Nov. 29.

The Standard & Poor’s 500 Index advanced 0.9 percent yesterday, while the MSCI World Index of stocks rose 0.5 percent.

Fed Pledge

“The Committee expects to maintain a highly accommodative stance for monetary policy,” the Federal Open Market Committee said in a statement released in Washington yesterday. “Economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

The Fed had previously pledged to keep its rate target in place until mid-2013.

New Zealand’s dollar traded little changed at 81.69 U.S. cents and 63.48 yen. Australia’s dollar fetched $1.0601 from $1.0597. It traded at 82.39 yen from 82.43 yen.

“Given ongoing uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent to keep the official cash rate on hold at 2.5 percent,” Bollard said in a statement today in Wellington. That was a change from his December statement, when he said it was “prudent for now” to maintain the rate, which has been at that level since March.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

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