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Dollar Weakens on Prospects Fed to Sustain Stimulus

The dollar weakened versus most of its 16 major counterparts on speculation signs of weakness in U.S. employment will encourage the Federal Reserve to sustain monetary stimulus that tends to debase the currency.

The greenback fell after Fed Chairman Ben S. Bernanke yesterday defended the central bank’s unprecedented bond buying. Demand for the 17-nation euro was limited before data tomorrow forecast to show retail sales in the currency bloc decreased for a second month and ahead of an Oct. 4 meeting of the European Central Bank. Australia’s dollar dropped to the lowest level in more than three weeks after the Reserve Bank cut interest rates. The yen slid versus its main peers as Asian stocks gained.

“The dollar’s just going to continue to see-saw,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk management company. “Economic concerns globally are keeping it relatively strong, but continued printing by the Fed is keeping it weak.”

The dollar rose 0.1 percent to 78.04 yen at 8:14 a.m. London time. It was little changed at $1.2883 per euro. Japan’s was also little changed, at 100.51 per euro.

The MSCI Asia Pacific Index of shares added 0.1 percent.

A report tomorrow from ADP Employer Services will show U.S. companies hired 140,000 workers in September, versus 201,000 in August, according to the median estimate of economists in a Bloomberg News survey. The government will release its monthly payrolls report on Oct. 5, a day after weekly jobless data is due.

Fed Policy

The Fed will publish on Oct. 4 minutes of its Sept. 13 meeting when it announced that it will buy $40 billion of mortgage bonds a month. The central bank will continue record stimulus even after economic expansion gains strength, Bernanke said yesterday in Indianapolis.

“We expect the economy to continue to grow,” the Fed chairman said. “Our concern is not really a recession. Our concern is that growth will continue but at a pace that’s insufficient to put people back to work.”

The Australian dollar dropped 0.6 percent to $1.0301, after touching $1.0294, the lowest since Sept. 7.

The Reserve Bank of Australia cut its benchmark interest rate to the lowest level since 2009 as a global slowdown weakens commodity prices that have helped drive 21 years of growth without a recession.

Governor Glenn Stevens and his board lowered the overnight cash-rate target by a quarter percentage point to 3.25 percent, the central bank said in a statement in Sydney today. The decision to end a three-month pause was predicted by nine of 28 economists surveyed by Bloomberg News.

RBA Decision

“We were calling for a 25 basis point cut today, and that’s what they delivered,” said Callum Henderson, Singapore-based global head of currency research at Standard Chartered Plc. “The knee-jerk reaction to the decision is negative” for the Aussie dollar, said Henderson, who expects the currency to decline to $1.0250 over the next few days.

Gains in the euro were limited before data tomorrow that economists in a Bloomberg poll said will show European retail sales fell 0.1 percent in August from July, when they slipped 0.2 percent. Figures yesterday showed unemployment in the euro area climbed to a record 11.4 percent in August.

The Frankfurt-based ECB will keep its main refinancing rate unchanged at a record low of 0.75 percent this week and will reduce it by the end of the year, a separate Bloomberg poll of economists showed.

Debt Crisis

“News out of Europe is certainly not going to get a huge amount better overnight,” said Averill. “The debt crisis is far from over. We’ve got some more bad headlines to come out of there, which will push euro-dollar lower.”

Spain’s Economy Minister Luis de Guindos said the nation is pressing on with its analysis of whether to seek a bailout, moving beyond his call last week that the EU needed to provide more guidance on conditions. Following a meeting with Economic and Monetary Affairs Commissioner Olli Rehn in Madrid yesterday, De Guindos said Spain is studying the ECB bond-buying proposal.

The move in Spain comes as European leaders enter a month that may decide the success of the central bank’s bid to end the debt crisis by pledging bond purchases. Spanish Prime Minister Mariano Rajoy, who spent six months campaigning for ECB President Mario Draghi to buy bonds, has been weighing the benefits of seeking aid since Aug. 2.

“If Spain decides to ask for a bailout, that’s a positive factor for the euro,” said Noriaki Murao, New York-based managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s biggest financial group by market value. “That could reduce risks of a euro breakup.”

The euro lost 3.1 percent over the past six months, the biggest drop after the Swiss franc among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar rose 0.5 percent and the yen jumped 6.3 percent.

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