Dollar Falls to 3-Month Low as Bernanke Won’t Rule Out Stimulus

The Dollar Index fell to a more than three-month low as Federal Reserve Chairman Ben S. Bernanke defended his unprecedented actions and made the case for further monetary stimulus to counter unemployment.

The currency weakened against all but one of its 16 most-traded peers as Bernanke said at an annual forum in Jackson Hole, Wyoming, that joblessness was a “grave concern” and that further bond purchases under quantitative easing shouldn’t be ruled out. The dollar also declined as reports showed business activity in the U.S. expanded more slowly this month and demand for U.S. capital goods dropped in July. South Africa’s rand was among leading gainers as stocks and crude oil rose on demand for higher-yielding assets.

“The fact that he said quantitative easing has worked in the past, and helps the economy, probably suggests he’s leaning towards more easing,” Charles St-Arnaud a foreign-exchange strategist at Nomura Holdings Inc. in New York, said of Bernanke in a telephone interview. “People were expecting something a little more direct in terms of signaling, but all the positives that he pointed out suggest that he’s more on the side of providing QE3.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, declined 0.5 percent to 81.250 at 5 p.m. in New York after touching 80.964, the lowest level since May 22. The dollar declined 0.6 percent to $1.2579 per euro and dropped 0.3 percent to 78.39 yen. The euro rose 0.2 percent to 98.56 yen.

Monthly Moves

The dollar fell 1.5 percent this month, according to Bloomberg Correlation-Weighted Indexes, which tracks 10 developed-nation currencies. The yen dropped 1.8 percent and the euro added 1 percent. Australia’s dollar was the biggest decliner, sliding 3.4 percent, while Norway’s krone led gainers with a 3 percent rise.

The Australian dollar declined as low as A$1.22311 per euro, its least since July 4, as China’s Shanghai Composite Index fell for a third day. The benchmark gauge yesterday reached its lowest level since February 2009. China is Australia’s largest export market. The Aussie rose 0.3 percent to $1.0322.

Australia’s currency may drop against the greenback over the next month to as low as $1.0098, the lowest level since June, after breaching a key support level, Research Institute Ltd. said, citing trading patterns.

The South African rand gained, rebounding from a five-week low against the dollar, as commodity prices rallied on stimulus speculation. The currency rose 0.9 percent to 8.4 per dollar after having increased as much as 1.4 percent, the most since Aug. 21.

Krona, Peso

Sweden’s krona advanced 0.9 percent to 6.6261 per dollar after gaining as much as 1.6 percent, the most since July 26. The currency’s 3.9 percent gain against the greenback is the second most this year after the Mexican peso.

The peso advanced from near a four-week low against the greenback after Bernanke said he may act to boost growth in the economy of the Latin American country’s biggest trading partner. The peso appreciated 1.2 percent to 13.1910 after touching 13.4383 yesterday, its weakest level since Aug. 2.

Mexico’s currency has advanced 5.7 percent this year against the U.S. dollar to lead gainers. Brazil’s real has fallen 8.1 percent to pace decliners. The yen has slid 1.9 percent and the euro has dropped 3 percent.

Euro Forecast

The euro could decline to $1.2042 in the short-term and depreciate to $1.15 by the end of the year, according to George Dowd, director of global foreign-exchange trading in Chicago at Spectrum Asset Management LLC.

“We’ve seen a pick-up in rhetoric this week as to what the policy is going to be in Europe going forward,” Dowd said in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “If the European Central bank starts to move away from Bundesbank recommendations, I don’t think that’s great for the euro.”

ECB policy makers meet Sept. 6 with investors pushing central-bank President Mario Draghi to detail his Aug. 2 proposal to reduce sovereign-bond yields by buying debt in markets alongside Europe’s rescue fund. Germany’s Bundesbank President Jens Weidmann criticized the proposal, calling it “touchy.”

Many policy makers at the Federal Open Market Committee’s previous meeting said additional stimulus probably will be needed soon unless the economy showed a “substantial and sustainable strengthening,” according to minutes of their July 31-Aug. 1 meeting.

‘Clear Sign’

The Fed has expanded its balance sheet with two rounds of bond purchases, known as quantitative easing, or QE. In the first, starting in 2008, the Fed bought $1.25 trillion of mortgage-backed securities, $175 billion of federal agency debt and $300 billion of Treasuries. In the second round, announced in November 2010, the Fed bought $600 billion of Treasuries.

“Even though initially the reaction was that there was no clear sign of QE3 coming in September, they did say they would provide additional policy accommodation as needed,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “It will depend even more than ever on the next set of economic data, particularly payrolls.”

The dollar declined as the Institute for Supply Management-Chicago Inc. said its business barometer fell to 53, from 53.7 in July. Figures greater than 50 signal expansion. Economists in a Bloomberg News survey forecast the gauge would drop to 53.2.

The 4 percent decrease last month in bookings for non-military capital goods excluding aircraft exceeded the 3.4 percent drop estimated last week in the durable-goods report, the Commerce Department said today. It remained the biggest decline since November.

U.S. payrolls are forecast to add 125,000 jobs in August, according to the median estimate of economists in a Bloomberg Survey, following an increase of 163,000 in July. The report is due Sept. 7. The unemployment rate is forecast to hold steady at 8.3 percent, according to a separate survey.

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