Dollar Drops Versus Major Peers as Fed Opens Meeting

Photographer: Kiyoshi Ota/Bloomberg

U.S. one-hundred dollar banknotes and ten-thousand yen banknotes are arranged for a photograph. Close

U.S. one-hundred dollar banknotes and ten-thousand yen banknotes are arranged for a photograph.

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Photographer: Kiyoshi Ota/Bloomberg

U.S. one-hundred dollar banknotes and ten-thousand yen banknotes are arranged for a photograph.

The dollar fell versus all but one of its 16 most-traded peers as investors pared bets the Federal Reserve will signal a change to its asset-buying program at the end of a two-day meeting tomorrow.

The euro rose to its strongest versus the dollar since December 2011 after exceeding a technical level amid increasing appetite for risk as optimism rose that fiscal turmoil in the region is easing. South Africa’s rand rallied against the dollar from the weakest in almost four years. The yen gained versus the dollar as U.S. consumer confidence fell.

“The Fed will reiterate that they’re going to continue with asset purchases, and that’s something that’s been weighing on the dollar today,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “Weak consumer confidence this morning also has put some pressure on the dollar.”

The U.S. currency touched $1.3497 per euro, the weakest level in almost 14 months, before trading at $1.3492 at 5 p.m. in New York, down 0.3 percent. The greenback depreciated 0.1 percent to 90.73 yen after touching 91.26 yesterday, the strongest since June 2010. The shared currency rose 0.1 percent to 122.41 yen.

The European currency tested a resistance level at $1.3493, which is the 50 percent Fibonacci retracement of the shared currency’s drop versus the dollar from May 2011 to July 2012, Richard Adcock, a technical strategist at UBS AG in London, wrote today in a client note. Resistance is an area on a chart where sell orders may be clustered. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a new high or low.

Weekly Gain

The euro gained 1.1 percent against the dollar last week as the European Central Bank said financial institutions will repay more of its loans than forecast, spurring optimism the worst of the region’s three-year-old debt crisis is over. The Stoxx Europe 600 Index climbed to 290.45 in London today, the highest level since February 2011.

South Africa’s rand rose versus most major peers, rebounding from its weakest level in almost four years against the dollar as investors bet the decline had gone too far. The currency appreciated 0.9 percent to 9.0271 per dollar. It slid to 9.1604 yesterday, the least since April 2009.

Japan’s currency gained versus the dollar as a report showed confidence among U.S. consumers dropped more than forecast in January to the lowest level in more than a year.

‘Not Realistic’

“What we’re seeing is a little profit-taking,” Mike Moran, a senior currency strategist at Standard Chartered Plc in New York, said in a telephone interview. “To expect dollar-yen to go in a straight line to 100 or 105 is not realistic.”

The Conference Board’s index of U.S. consumer confidence decreased to 58.6, the weakest since November 2011, from a revised 66.7 in December, figures from the New York-based private research group showed today.

The yen rose earlier versus the dollar as investors reduced wagers it would keep falling after sliding for the past 11 weeks in the longest losing streak on record.

Japan’s currency fell 6.2 percent over the past month in the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2 percent, while the dollar declined 0.3 percent.

The dollar fell today against all of its major peers except the Taiwanese dollar, which lost less than 0.1 percent to 29.553 to the greenback.

‘Evenly Divided’

The Federal Open Market Committee will issue a policy statement tomorrow after a meeting it opened today. Minutes of the committee’s December session showed participants were “approximately evenly divided” between those who said it would be appropriate to end its third round of asset purchases, known as quantitative easing or QE3, around mid-2013 and those who thought the buying would need to continue beyond that.

The Fed is buying $85 billion of Treasuries and mortgage debt each month to boost economic growth and spur employment.

“The groundbreaking meeting was December, and they’ll be in a holding pattern through January, so I don’t think we’ll get any fresh drivers from the meeting tonight,” said Daragh Maher, a strategist in London at HSBC Holdings Plc.

The New Zealand dollar rose for the first time in four days against its U.S. counterpart after the statistics bureau said the annual trade deficit narrowed to NZ$1.21 billion ($1 billion) in the 12 months ended December, compared with a revised NZ$1.39 billion shortfall in the year through November.

The kiwi, as the currency is nicknamed, strengthened 0.7 percent to 83.94 U.S. cents after falling 1 percent in the previous three days.

Trading Volumes

Sterling rose for the first time in four days against the euro before a report forecast to show U.K. mortgage approvals increased in December. The pound appreciated 0.2 percent to 85.59 pence.

U.K. currency-trading volumes fell to an average $1.92 trillion a day in October, 5 percent lower than six months earlier, the Bank of England said, citing its twice-a-year surveys for the Foreign Exchange Joint Standing Committee.

Average currency-trading volumes in the U.S. declined to $794 billion a day in October from $860 billion in April, the Federal Reserve Bank of New York said.

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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