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Dollar Falls Toward 8-Month Low on Prospects of More Fed Easing

Ben S. Bernanke, chairman of the U.S. Federal Reserve
Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Joshua Roberts/Bloomberg

The dollar fell toward an eight-month low against the euro on speculation that Federal Reserve policy makers will signal this week their willingness to buy more government debt to support economic growth.

The greenback touched a 15-year low versus the yen before tomorrow’s release of the Fed’s Sept. 21 policy meeting minutes and after a U.S. report last week showed job cuts were bigger than expected. The euro strengthened against 12 of 16 major counterparts as Asian stocks and commodities rose, underpinning demand for riskier investments. Australia’s dollar strengthened toward the highest level since it began trading freely in 1983 after home-loan approvals climbed for a second-straight month.

“The dollar is likely to continue to fall over the coming months as the Fed provides increasing dollar liquidity, although its weakness will be tempered by the fact that a lot of this is already priced into the currency,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole CIB in Hong Kong.

The U.S. currency slid to $1.3969 per euro as of 7:54 a.m. in London from $1.3939 in New York on Oct. 8. It fell to $1.4029 on Oct. 7, the lowest level since Jan. 28. The dollar traded at 81.98 yen from 81.93 yen last week, after earlier reaching 81.39 yen, the weakest since April 1995. The euro advanced to 114.48 yen from 114.19 yen.

Australia’s currency rose 0.1 percent to 98.61 U.S. cents. It reached a record 99.18 cents on Oct. 7. Financial markets in Japan are closed for a holiday today.

U.S. Data, Fed

U.S. employers cut payrolls by 95,000 workers in September after a revised 57,000 decrease in August, Labor Department figures in Washington showed on Oct. 8. The median forecast of 87 economists surveyed by Bloomberg News called for a 5,000 drop. The unemployment rate unexpectedly held at 9.6 percent.

Fed Chairman Ben S. Bernanke said on Oct. 4 that the central bank’s first round of large-scale asset purchases aided the economy and that further quantitative easing, or QE, is likely to help more. New York Fed President William Dudley, who has voiced support for more government bond purchases, will speak in Washington later today.

“Since August, the Fed has been leaning towards more quantitative easing measures to underpin the weakened U.S. recovery,” Philip Wee, a senior currency economist in Singapore at DBS Group Holdings Ltd., wrote in a research note today. “We have downgraded the outlook for the dollar.”

DBS Cuts Forecasts

DBS lowered its year-end forecast for the dollar to trade at $1.40 per euro from $1.28 previously, and to be at 83 yen from 88 yen before, according to the note.

The euro traded near an eight-week high against the Swiss franc as the MSCI Asia Pacific excluding Japan Index gained 0.6 percent and the price of gold rose 0.5 percent.

“Risk-taking appetite may be positive, given higher equities and commodities,” said Yusuke Tanaka, a senior dealer at Mitsubishi UFJ Trust & Banking Corp. in Singapore. “This is probably a plus for the euro.”

(Europe’s common currency was at 1.3432 Swiss francs from 1.3419 francs on Oct. 8, when it reached 1.3494 francs, the strongest since Aug. 13.

Gains in the yen were tempered on speculation that Japan will intervene to stem the appreciation of its currency.

Japanese Finance Minister Yoshihiko Noda said on Oct. 8 Group of Seven officials understand Japan’s position on the yen’s gains and agreed that excessive foreign-exchange movements are undesirable.

‘No Official Criticism’

“There was no official criticism of Japan’s decision to intervene in the foreign-exchange market by selling yen,” said Gareth Berry, a currency strategist at UBS AG in Singapore. “This increases the chance of a further round of intervention should the yen continue to appreciate.”

At the International Monetary Fund’s annual meeting in Washington over the weekend, governments tasked the agency with calming the recent outbreak of tensions over currencies amid signs they are already triggering a protectionist backlash. Officials including U.S. Treasury Secretary Timothy F. Geithner and Egyptian Finance Minister Youssef Boutros-Ghali said the lender should outline how countries can expand their economies without damaging those of other nations.

(Australia’s dollar gained for a fifth day versus its U.S. counterpart on prospects the nation’s central bank will raise its benchmark interest rate next month.

Australian home-loan approvals rose 1 percent in August from a month earlier, the statistics bureau said today, matching the median estimate of economists surveyed by Bloomberg News.

“The market is very keen to take the Aussie higher,” said Khoon Goh, head of market economics at ANZ National Bank Ltd. in Wellington. “The rhetoric is certainly pointing toward providing more stimulus for the U.S. economy and that’s why the market is pricing in a decent probability of QE2, putting the U.S. dollar under downward pressure.”

Benchmark interest rates are 4.5 percent in Australia and 3 percent in New Zealand, compared with as low as zero in Japan and the U.S., attracting investors to the South Pacific nations’ assets. The risk in such trades is that currency market moves will erase profits.

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