The dollar was within 0.2 percent of a one-week low against the euro on bets Federal Reserve Chairman Ben S. Bernanke today may signal more stimulus is needed to spur a recovery in the world’s largest economy.
The yen slid versus most major peers as Asian stocks extended a global rally, damping demand for refuge assets. The euro remained higher after its biggest gain in three months against the yen yesterday amid speculation the European Central Bank will act to rein in the region’s debt crisis after leaving its benchmark interest rate at a record low. Australia’s dollar rose toward parity with the greenback after data showed the nation’s employers unexpectedly added workers in May.
“The U.S. dollar is certainly susceptible to indications that the Fed is looking at QE3, considering that long positions have been built up to near-record levels,” Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd, said referring to a third round of debt purchases known as quantitative easing. “It’s the rhetoric that really matters for markets.”
The dollar traded at $1.2566 per euro as of 6:47 a.m. in London from $1.2582 in New York yesterday, when it touched $1.2586, the weakest since May 28. The U.S. currency added 0.4 percent to 79.48 yen. The 17-nation euro rose 0.2 percent to 99.87 yen from yesterday, when it advanced 1.6 percent, its biggest gain since Feb. 24.
The Australian dollar strengthened 0.3 percent to 99.58 U.S. cents. The Aussie hasn’t traded at parity with the U.S. dollar since May 15.
Bernanke will testify to U.S. lawmakers in Washington today. He said in April the Fed may provide more easing should unemployment fail to make “sufficient progress towards its longer-run normal level.”
Fed Vice Chairman Janet Yellen said yesterday in Boston that slowing job growth and deteriorating financial-market conditions show the U.S. economy “remains vulnerable to setbacks” and may warrant additional monetary stimulus.
The policy-setting Federal Open Market Committee meets June 19-20 to consider whether to add to its record easing after the economy created the fewest jobs in a year in May. Two regional Fed bank presidents who vote on policy this year, San Francisco’s John Williams and Atlanta’s Dennis Lockhart, said yesterday the central bank should be prepared to take action if the economy deteriorates further.
The Fed’s Beige Book business survey showed yesterday that the U.S. economy maintained a moderate pace of growth as factory output rose and the real-estate market improved.
The dollar has declined 1.1 percent over the past week, the second-worst performance among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes. The yen dropped 2.7 percent, while the euro appreciated 0.7 percent.
The ECB’s decision to leave its key rate at 1 percent yesterday was predicted by 49 of 60 economists surveyed by Bloomberg News. Ten forecast a quarter-point reduction, and one a half-point cut.
“We monitor all developments closely and we stand ready to act,” ECB President Mario Draghi told reporters in Frankfurt following the decision. Downside risks to the economic outlook have increased and “a few” of the ECB’s Governing Council members called for a rate cut at the meeting, he said.
The yen fell versus the dollar and the euro as stock gains sapped demand for the relative safety of the Japanese currency.
“Very strong equity gains in North America and some gains in Europe have bled their way into Asia,” said Sacha Tihanyi, a senior Hong Kong-based strategist at Scotiabank, a unit of Bank of Nova Scotia. “The Japanese yen is being sold a little bit, though it’s fairly restrained selling.”
The MSCI Asia Pacific Index of shares gained 1.4 percent. The Standard & Poor’s 500 Index climbed 2.3 percent yesterday, while the MSCI World Index rose 2.2 percent.
The yen may depreciate towards 80.15 per dollar should it close weaker than a resistance level at 79.22, Richard Adcock, London-based head of fixed-income technical strategy in London at UBS AG, wrote in a report yesterday. Resistance is an area on a chart where sell orders may be clustered.
The 80.15 level is the 38.2 percent Fibonacci retracement level of the currency’s strengthening from 84.18 on March 15 to 77.66 on June 1, according to data compiled by Bloomberg.
The so-called Aussie gained against all 16 of its major peers after the country’s statistics office reported payrolls increased by 38,900 last month after a revised 7,000 gain in April. That compared with the median estimate for no change in employment in a Bloomberg survey of economists.
Reserve Bank of Australia Governor Glenn Stevens lowered the central bank’s key interest rate 25 basis points this week to 3.5 percent.
Australia’s jobs report was “quite a bullish outcome,” said Jonathan Cavenagh, a currency strategist in Singapore at Westpac Banking Corp. “The risks are you see the market probably price out further RBA rate cuts from here.”
Traders bet the RBA will cut interest rates by 92 basis points in the next 12 months, down from 156 basis points of easing signaled on June 4, according to a gauge compiled by Credit Suisse Group AG based on overnight-index swap rates.