The dollar declined to a six-week low against the euro and slumped against the yen after the Federal Reserve said it’s willing to ease monetary policy further to bolster the U.S. economy.
The yen reached the strongest level against the greenback since Sept. 15, when Japan sold the nation’s currency as it hit a 15-year high that threatened to derail an export-led recovery. The dollar fell against 15 of its 16 most-traded counterparts, with the Swiss franc reaching parity, as investors sought a refuge from erosion in the purchasing power of the greenback.
“It’s the threat of increasing the balance sheet that is weighing on the dollar,” said Jessica Hoversen, a Chicago-based analyst at the futures broker MF Global Holdings Ltd. “It put the dollar in an unfortunate position versus some of the relatively higher-grossing currencies.”
The dollar fell 1.4 percent to 1.3248 per euro at 4:26 p.m. in New York, the weakest since Aug. 9, from 1.3061 yesterday. The yen strengthened 0.7 percent to 85.09 per dollar from 85.69. The Swiss franc appreciated 0.8 percent to 0.9968 per dollar, the strongest since Sept. 15, from 1.0048 yesterday.
The MSCI World Index of shares advanced 0.1 percent and gold futures for December delivery surged to a record $1,289.40 an ounce.
“The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate,” the Federal Open Market Committee said today in a statement in Washington.
Increased pressure on the Fed to resume quantitative easing, or the large-scale purchase of debt, could push the dollar to weaken against the yen, said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York.
Japan unilaterally intervened in foreign exchange markets on Sept. 15 for the first time since 2004. While that helped the currency slump 3.3 percent on the day, it has since climbed 0.8 percent.
Finance Minister Yoshihiko Noda said today the government will continue to intervene if necessary, and said the policy was aimed at containing volatility.
Japan’s move drew a rebuke from Luxembourg Prime Minister Jean-Claude Juncker, who chairs meetings of euro-region finance ministers. Juncker said that the group was “insisting” Japanese authorities “step back from unilateral interventions,” speaking in Brussels last week.
The FOMC was expected to refrain from expanding its balance sheet by purchasing securities, according to 60 of 64 analysts surveyed Sept. 16-17. Fifty-four of 63 economists said the Fed would leave unchanged a sentence in its statement saying high unemployment and low inflation warrant “exceptionally low” rates for an “extended period.”
“It seems like the obvious beneficiary is the euro,” said Tim O’Sullivan, chief trader at FOREX.com, a unit of the online currency trading company Gain Capital in Bedminster, New Jersey. “Interest rates are going to be low in the states for the near to medium term and that’s not the case in Europe. It makes the euro look pretty enticing.”
European Debt Sales
The euro earlier rallied versus the greenback after investors bought the maximum amounts offered at Spanish and Irish debt sales, reducing concern the region’s sovereign debt crisis will worsen.
Ireland sold 1.5 billion euros ($1.97 billion) in a bond auction, the National Treasury Management Agency said today. Spain sold 7 billion euros of 12-month and 18-month bills, the maximum target, the Bank of Spain said. Greece sold 390 million euros of 13-week Treasury bills at a yield of 3.98 percent, the Athens-based Public Debt Management Agency said.
Australia’s currency gained 0.7 percent to 95.42 U.S. cents, from 94.72 cents yesterday. It touched 95.64 cents, the strongest level since July 2008.
Reserve Bank of Australia policy makers signaled they may need to raise interest rates given the pace of the nation’s economic expansion.
“This is all about a willingness to entertain quantitative easing,” Ruskin said. “It highlights the sharp distinctions of some economies, like Sweden and Australia, where guys are actually hiking interest rates, and the U.S.”
Canada’s currency rose against its U.S. counterpart after the Fed announcement spurred demand for assets that benefit from global growth. The loonie, as the currency is sometimes known, dropped earlier after a report showed inflation unexpectedly fell in August, raising speculation that Bank of Canada will pause in its cycle of interest-rate increases when policy makers meet next month.
The loonie strengthened 0.2 percent to C$1.0265 per U.S. dollar after touching C$1.0217, compared with C$1.0282 yesterday.