Dollar Set for Weekly Decline Before Fed’s Bullard Speaks

The dollar headed for a weekly drop against most of its major peers as comments from Federal Reserve policy makers caused investors to push out expectations for when the central bank will reduce stimulus.

Fed Bank of St. Louis President James Bullard, who has advocated an increase in asset purchases if inflation slows, is due to speak today. The greenback was set for its first weekly slide in four against the yen before data next week forecast to show consumer price gains remained below the Fed’s 2 percent target. The euro slid from a three-week high before a government report which may show industrial production in the region declined.

“The dollar may continue to be soft in the short term,” said Ken Takahashi, an assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “While the main scenario is still for tapering of asset purchases to start in September, the pace of it may be a little slower than what the market was expecting. Comments by Fed officials will be a focus.”

The dollar traded at 99.03 yen at 6:41 a.m. in London from 98.96 yesterday, when it touched 98.27, the weakest since June 27. It’s set for a 2.1 percent decline this week. The euro fell 0.1 percent to $1.3079 from $1.3097 yesterday, when it touched $1.3207, the strongest level since June 21.

The 17-nation euro slid 0.1 percent to 129.49 yen. For the week, the euro was poised for 2 percent appreciation against the greenback, which would be the most since the five days ended Jan. 11.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, gained 0.1 percent to 82.817 from yesterday, when it dropped 1.5 percent, the biggest decline since October 2011.

Highly Accommodative

Fed Chairman Ben S. Bernanke said in response to a question after a speech in Cambridge, Massachusetts on July 10 that “highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy.” He is scheduled to deliver a semi-annual monetary policy report to Congress in the House of Financial Services Committee on July 17.

The Fed buys $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs, which tends to devalue the U.S. currency.

Bullard, a voting member of the Federal Open Market Committee this year, speaks in Jackson Hole, Wyoming today. Minutes of the Fed’s June 18-19 meeting released July 10 showed that he said the central bank should “signal more strongly its willingness to defend its goal of 2 percent inflation” in light of low readings on consumer-price increases.

Consumer Prices

“Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,” the minutes showed.

U.S. consumer prices probably grew 1.6 percent in the 12 months to June after a 1.4 percent year-over-year gain in May, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department releases data on July 16. Labor Department data yesterday showed that initial claims for jobless benefits in the U.S. unexpectedly rose last week to a two-month high.

The dollar’s declines versus the euro “remain temporary and corrective,” MacNeil Curry, the New York-based chief rates and currencies technical strategist at Bank of America Corp.’s Merrill Lynch unit wrote in an e-mailed note to clients yesterday. There’s a risk the euro will climb toward retracement resistance at $1.3276 before its “larger bear trend” resumes, Curry wrote. Resistance is an area on a chart where orders to sell may be clustered.

Industrial Output

Euro-area industrial output probably fell 0.3 percent in May from the previous month when it increased 0.4 percent, according to a Bloomberg survey. The European Union’s statistics office in Luxembourg is due to release data today.

European Central Bank President Mario Draghi pledged last week to keep borrowing costs low for an extended period. The ECB wanted to provide forward guidance in a more explicit way than it did in the past, he told reporters. The bank’s key interest rate is a record-low 0.5 percent.

“The euro’s probably a bit too much on the high side,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia (CBA), the nation’s biggest lender. “The European economy’s weak, they’ve got low inflation and they’ve got a central bank that has an easing bias.”

CBA sees the euro at $1.26 by Dec. 31, Capurso said.

Singapore’s dollar reached the strongest in three weeks after the economy expanded more than economists estimated. Gross domestic product rose an annualized 15.2 percent in the three months through June from the previous quarter, when it grew 1.8 percent, the Trade Ministry said in a statement today. The median economist forecast was for an 8.1 percent expansion.

The Singapore dollar was 0.2 percent lower at S$1.2613 against the greenback after earlier touching S$1.2580, the strongest since June 19.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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