Dollar Depreciates Against Majors Before Fed Decision

Yen Falls to Eight-Month Low as Stock Gains Boost Risk Appetite
The yen fell versus all 16 of its major peers. Photographer: Akio Kon/Bloomberg

The dollar fell to the lowest level in almost a week versus the euro as investors anticipate the Federal Reserve will announce additional monetary stimulus.

The U.S. currency weakened against its higher-yielding counterparts as 48 of 49 economists surveyed by Bloomberg expect the central bank to add to bond purchases, known as quantitative easing, after a two-day meeting concludes today. The yen fell to the weakest in eight months versus the dollar as Japan’s Liberal Democratic Party, which has pledged fiscal stimulus to stoke economic growth, leads in polls before Dec. 16 elections. The 17-nation euro strengthened after Bank of Greece Governor George Provopoulos said the nation’s bond buyback was a success.

“Easing is negative for the dollar and at the margin the Fed will be easing more relative to the euro, the pound, the yen,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “The market has QE fatigue so this will be only short-term.”

The dollar fell 0.3 percent to $1.3041 per euro at 11:19 a.m. in New York, touching the weakest since Dec. 6. The euro gained 1.1 percent to 108.47 yen. The Japanese currency declined

0.8 percent to 83.17 per dollar, reaching the lowest level since April 2.

Domestic Considerations

Anticipation that the Fed will add additional dollars by purchasing Treasuries outweighed negative domestic factors for other currencies against the greenback.

South Korea’s won rose to the strongest level in 15 months against the dollar, even after North Korea launched a rocket in defiance of international sanctions.

The currency advanced 0.2 percent to close at 1,074.93 per dollar in Seoul. It earlier touched 1,073.64, the strongest level since Sept. 8, 2011, before paring gains following the North’s rocket launch.

The Australian dollar climbed to the highest in more than two months. The so-called Aussie appreciated 0.2 percent to $1.0546 after rising to the strongest since Sept. 17. Gains were limited as the nation’s consumer confidence slumped by the most in nine months.

“There is a slightly more benign view of risk today,” said Michael Derks, chief strategist at FxPro Group Ltd. in London. “There’s likely to be more quantitative easing from the American central bank today.”

Krone Gains

Norway’s krone rallied 0.3 percent to 5.6300 per dollar, the second largest gain after the Swiss franc.

Crude oil futures advanced 1.3 percent to $86.90 a barrel in New York as the International Energy Agency increased its demand forecast. Norway is Europe’s largest oil producer and the Organization of Petroleum Exporting Countries maintained its quota for a second time this year at a meeting in Vienna as the group’s members judged prices to be sufficiently high.

LDP leader and former Japanese premier Shinzo Abe has called for a doubling of the central bank’s inflation goal to 2 percent and “unlimited” easing to end more than a decade of falling prices. The Bank of Japan is due to a hold a monetary policy meeting on Dec. 19-20.

The yen lost 6 percent in the past month, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 1.5 percent, while the euro gained 1.3 percent.

The dollar has slipped versus most of its major counterparts this week amid speculation the Fed will add Treasury purchases to an existing program that buys $40 billion in mortgage bonds each month.

Fed Policy

The Federal Open Market Committee will announce $45 billion in monthly Treasury buying that would push the central bank’s balance sheet almost to $4 trillion, according to the median estimate in a Bloomberg News survey of 49 economists.

The purchases would follow the expiration at year-end of the so-called Operation Twist program, which aims to lengthen the average maturity of the Fed’s holdings. The U.S. central bank pumped $2.3 trillion into the financial system from 2008 to 2011 in two rounds of the stimulus.

“The bias is for the dollar to be sold,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The Fed seems to have no intention to relax its easing stance.”

Greece plans to repurchase government bonds with a face value of 31.9 billion euros ($41.6 billion) from private investors including its own banks in a debt buyback to free up aid for the cash-strapped country.

Greece will pay an average weighted price of 33.8 percent of face value for bonds maturing from 2023 to 2042, the Athens-based Public Debt Management Agency said in a statement on its website today.

The Swiss franc’s rebound from a three-month low against the euro shows that even bank charges for deposits and a lull in Europe’s debt crisis can’t deter demand for the currency.

The Zurich-based Swiss National Bank will keep its franc ceiling at 1.20 per euro tomorrow, according to all 14 analysts in a Bloomberg News survey. While the currency weakened after Credit Suisse Group AG said on Dec. 3 it would set negative rates for franc cash balances, it pared almost all those losses in a three-day run of gains.

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