Dollar Declines to Seven-Month Low Versus Yen Before Fed

The dollar fell to the weakest in seven months versus the yen amid speculation the Federal Reserve will announce bond buying to bolster the economy in a program of quantitative easing that tends to debase the currency.

The greenback traded at almost a four-month low against the euro before the central bank also releases policy makers’ forecasts for unemployment, inflation and the expected path of the federal funds rate. The Russian ruble gained versus the greenback after the country’s central bank unexpectedly raised all of its policy rates by a quarter-percentage point.

“The expectation is for the Fed to announce some form of new policy easing likely to be QE3 or new asset purchases,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “Because that will likely involved printing new dollars to buy these assets, there’s an inevitable negative impact on the U.S. currency.”

The dollar fell 0.6 percent to 77.42 yen at 11:44 a.m. New York time, after reaching 77.37, the least since Feb. 14. It was little changed at $1.2909 per euro after touching $1.2937 yesterday, the weakest since May 11. The euro slipped 0.5 percent to 99.94 yen.

The Dollar Index (DXY) fell a third day before the Fed concludes its two-day policy meeting at which economists surveyed by Bloomberg forecast a third round of QE will be announced.

Ruble Drops

The ruble extended gains against the dollar after the country’s central bank raised the refinancing rate to 8.25 percent from 8 percent, the first increase since April 2011. The overnight auction-based repurchase rate will rise to 5.5 percent from 5.25 percent and the overnight deposit rate to 4.25 percent from 4 percent, effective tomorrow.

The currency rose 0.3 percent to 31.3712 per dollar. It gained 0.4 percent to 40.4502 per euro.

South Africa’s rand weakened after Anglo American Platinum Ltd. (AMS), the largest producer of the metal, said yesterday it suspended its Rustenburg operations after workers were intimidated. The threats follow stoppages at Lonmin Plc (LMI)’s Marikana mine and Gold Fields Ltd.’s KDC West shaft.

About 43,000 people are either on strike at the three companies or staying away from work following conflict at Lonmin’s Marikana site last month in which 44 people died.

The rand fell 0.4 percent to 8.3652 per dollar.

Franc Level

Switzerland’s franc fell for a second day against the euro after the Swiss National Bank announced it would maintain its 1.20 limit against the shared currency.

The franc dropped 0.2 percent to 1.2112 per euro after declining to 1.2155 on Sept. 7, the weakest since Jan. 9.

The U.S. central bank is predicted to extend the duration of its zero-interest-rate policy into 2015. Two previous series of bond purchases totaling $2.3 trillion have failed to revive the labor market, which Fed Chairman Ben S. Bernanke said last month is a “grave concern.”

“Anticipation of QE3 is very high,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “The dollar may extend declines for some time, given that QE3 isn’t priced-in completely.”

The Dollar Index, which IntercontinentalExchange Inc. (ICE) uses to track the greenback against the currencies of six U.S. trading partners, declined 0.1 percent to 79.632. It yesterday touched 79.522, the lowest since May 4.

Dollar Rebound

Measures of momentum indicate the dollar may be poised to rebound from its slide since an August employment report heightened speculation the Fed will add more stimulus, according to Standard Chartered Plc.

“The Dollar Index is very oversold, with weekly relative strength indices and stochastic back to 2008-2012 levels, which have preceded explosive rebounds,” Callum Henderson, global head of currency research at Standard Chartered in Singapore, wrote in a note to clients yesterday.

Stochastics, a technical analysis tool based on momentum measures, are often used to identify whether a security’s price is overbought or oversold.

Since December 2008, when the Fed began its asset-purchase programs, the Dollar Index has dropped more than 8 percent.

The dollar has depreciated 1.6 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was gained 0.4 percent and the euro advanced 0.7 percent.

Yen Surge

Japan’s Vice Finance Minister Takehiko Nakao told reporters in Tokyo today the recent surge in the yen against the dollar has been “obviously speculative” and that Japan can’t overlook such moves.

Further appreciation in the yen may see Japan intervene in the currency market, according to Steven Barrow, head of Group of 10 research at Standard Bank Plc in London.

Japanese Finance Minister Jun Azumi ordered currency intervention on Oct. 31, after the yen strengthened to a post- war record 75.35 per dollar.

“If the Fed were to act particularly aggressively today and we were to see dollar-yen fall quite significantly, then I think we probably would see some intervention,” Barrow said on Bloomberg TV’s “The Pulse” with Guy Johnson. “We’re 77.5 now, so you could say that we’ve maybe still got a little bit of a way to go, but I don’t think we’re that far away,” he said.

The yen tested a support level at 77.36 earlier before depreciating again. This represents an “short-term correction” lower, according to Tim McCullough, a technical strategist at Lloyds Banking Group in London.

The yen may appreciate further to levels as high as 74.30 in the next few weeks, McCullough said in a telephone interview.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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