Dollar Declines as Fed Expresses Strong Currency Concern

The dollar fell from almost a four-year high after minutes from the Federal Reserve’s last meeting showed officials are concerned that the global slowdown and a stronger currency pose risks to the U.S. economic outlook.

The greenback weakened for a third day as futures traders lowered bets the Fed will lift interest rates after the release of the minutes from the Sept. 16-17 meeting. South Africa’s rand rose as a gauge of emerging-market currencies erased a drop. Russia’s ruble declined amid data that showed the central bank sold $420 million of foreign currency in its third day of interventions this month. The yen fell.

“It kind of looks like the Fed will take any excuse not to normalize rates in the near term,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “What we’re seeing is consolidation and probably a brief period of stability. Overall, the bull rally on the dollar is still intact.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.5 percent to 1,062.09 as of 5 p.m. New York time, after earlier rising 0.3 percent.

The U.S. currency slipped a third day versus the euro, losing 0.5 percent to $1.2734. The euro gained 0.6 percent to 137.63 yen while Japan’s currency was little changed at 108.08 yen per dollar.

Yen Slides

Japan’s yen declined versus most of its major peers as politicians flagged a need to discuss an exit strategy to a monetary policy program that’s driven the yen lower. The central bank is buying 60 trillion ($555 billion) yen to 70 trillion yen of assets annually.

“It could be important to get involved in this issue and the government should thoroughly examine it,” lawmaker Toshihiro Nikai said after a meeting of the ruling Liberal Democratic Party’s general council.

Bank of Japan Governor Haruhiko Kuroda said yesterday that the central bank will closely monitor the exchange rate while Prime Minister Shinzo Abe said its weakness is hurting small companies and households.

The International Monetary Fund forecasts the nation will grow 0.8 percent next year, slower than the 1.1 percent projected in July, it said yesterday.

Ruble Declines

An index of 20 major developing-nation exchange rates rose 0.2 percent to 87.6767 after an earlier decline. The rand added 1.3 percent to 11.0399 per dollar, the best performer of the U.S. dollar’s 31 major peers. Turkey’s lira erased a loss to gain 0.6 percent, even as the region’s Kurds protested the government’s limited response to Islamic State militants.

Russia’s ruble dropped for the ninth time in 10 days against a euro-dollar basket, sliding 0.5 percent to 44.9185. The currency slid as data showed the nation’s monetary authority spent funds on Oct. 6 to shore up the ruble. The bank also said it shifted the upper boundary of the currency’s trading band by 5 kopeks yesterday.

The dollar dropped as a number of FOMC participants said growth “might be slower than they expected if foreign economic growth came in weaker than anticipated,” according to minutes of the Sept. 16-17 Federal Open Market Committee meeting released today in Washington.

The FOMC last month retained a pledge to keep interest rates near zero for a “considerable time” after it concludes an asset purchase program that’s due to end after its October meeting.

“There was some wording that the strong dollar in the last month or so has put a damper on inflation,” said Sweeting. “That kind of outlook or forward guidance would have been most of the reasoning behind why the market’s reacted the way it has.”

Futures trading showed about a 58 percent likelihood that the central bank will increase borrowing costs to 0.5 percent or higher next September, down from 68 percent before the release. The target rate has been at zero to 0.25 percent since December 2008 to support the economy.

The Fed, which next meets Oct. 28-29, is on track to end a program of stimulatory bond purchases this month.

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