The dollar fell versus the yen after the Federal Reserve’s Beige Book business survey showed subdued U.S. economic growth, increasing speculation the central bank won’t raise interest rates any time soon.
The euro erased gains versus the dollar and fell against the yen as stocks reversed an advance and dropped, reducing demand for riskier assets before the European Central Bank announces an interest-rate decision tomorrow.
“The Beige Book shows the weakness and the tepidness of the U.S. economy, and that’s likely to undermine the risk trade in the short run,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The Fed is going to maintain this easy interest-rate policy for the foreseeable future. I don’t think anyone’s expecting very much from ECB, though it’s important they continue to buy bonds.”
The dollar weakened 0.2 percent to 91.30 yen at 5 p.m., from 91.46 yesterday. The euro was little changed at $1.1979, after earlier gaining as much as 0.8 percent to touch $1.2074, from $1.1973. It fell less than 0.1 percent to 109.32 yen, from 109.51 yen.
The Standard & Poor’s 500 Index fell 0.6 percent after climbing as much as 1.5 percent.
The Fed’s business survey said that while the U.S. economy strengthened in all 12 of the central bank’s regions in April and May, driven partly by consumer and business spending, growth in many districts was “modest.” The report is published two weeks before the Federal Open Market Committee meets to set monetary policy.
Fed Chairman Ben S. Bernanke said in congressional testimony earlier today the recovery, while sustained by private demand, isn’t as strong as he prefers. It faces risks from Europe’s debt crisis that may require further Fed action, he said. Policy makers reiterated in April they will keep borrowing costs near zero for an “extended period.”
The U.S. central bank will hold off raising rates until 2011, according to economists surveyed by Bloomberg News. The benchmark rate has been at a range of zero to 0.25 percent since December 2008.
The euro earlier fell versus the greenback on speculation the ECB will leave rates unchanged tomorrow and announce further measures to add liquidity to the financial markets. The bank has purchased the debt of some nations to help halt the spread of Greece’s sovereign-debt crisis.
The ECB might “be forced in the near future to engage in more full-scale quantitative easing in order to support European government debt markets,” Danske Bank A/S analysts including Lars Tranberg Rasmussen in Copenhagen wrote in a note to clients. “The decline of the euro is expected to continue, and we find it difficult to see what the ECB can say to talk the euro stronger right now.”
Economists surveyed by Bloomberg forecast policy makers will leave the key interest rate at a record low 1 percent until the second quarter of 2011.
Russia “believes” in the euro and thinks the European currency’s current problems are temporary, Prime Minister Vladimir Putin said in an interview broadcast on the France 2 television channel. The ECB “should maybe print some money,” Putin said in the interview that was recorded on June 7 and broadcast today.
The euro has dropped 9.5 percent against its developed-world counterparts this year, according to Bloomberg Correlation Weighted Indexes, in part on concern that Europe’s fiscal woes would force central banks to slow euro purchases.
Sweden’s krona rose as much as 1.2 percent to 7.9646 per dollar before trading at 8.0365, up 0.3 percent. Swedish industrial production grew at an annual 7.3 percent in April, the most in more than three years, boosting speculation the nation’s central bank will raise interest rates next month.
Brazil’s currency rose versus the greenback on speculation the nation’s central bank will raise rates after the economy grew at its fastest annual rate since 1995, 9 percent, in the first quarter. The real gained 0.3 percent to 1.8494 per dollar.
Brazilian central bank President Henrique Meirelles will increase the benchmark Selic rate 75 basis points to 10.25 percent, according to economists surveyed by Bloomberg.
“Most commentators believe that Brazil is starting to overheat and the central bank has to act quickly,” Simon Smollet, a London-based strategist at Credit Agricole SA, wrote in a note to clients.