The dollar held a two-day decline against the euro on bets U.S. policy makers meeting this week will say they intend to keep interest rates at a record low for an extended period even as they end bond buying.
A gauge of the U.S. currency headed for its first monthly drop since June as traders cut the probability the central bank will raise borrowing costs by October 2015 to a 49 percent chance from 85 percent odds at the end of last month. The Fed starts a two-day meeting today. The yen fell against all except three of its 16 major peers before the Bank of Japan sets policy this week with some economists predicting an expansion of monetary stimulus. Indonesia’s rupiah weakened.
“The key is going to be the tone of the Fed’s statement, and I think the tone will be extremely cautious,” said Yuki Sakasai, a foreign-exchange strategist at Barclays Plc in New York. “In the near term, the dollar is going to be heavy.”
The dollar was little changed at $1.2707 per euro as of 7:09 a.m. in London after declining 0.4 percent in the previous two days. The U.S. currency was little changed at 107.84 yen after touching 108.38 yesterday, the most since Oct. 8. The yen was little changed at 137.01 per euro.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, was little changed at 1,066.12. It has dropped 0.4 percent in October.
The Federal Open Market Committee indicated at its September meeting that it planned to end its bond-purchase program this month. Policy makers have kept their key interest rate at zero to 0.25 percent since December 2008.
“Markets are reluctant to strengthen the dollar” before the Fed’s decision, analysts at ANZ Bank New Zealand Ltd., including Auckland-based senior currency strategist Sam Tuck, wrote today in a note to clients.
The dollar has strengthened 5.9 percent in the past three months, the best performer of 10 developed-nation currencies tracked by Bloomberg correlation-Weighted Indexes, amid speculation an improving U.S. economy will eventually lead to higher interest rates. The yen fell 0.7 percent and the euro depreciated 0.5 percent.
The yen approached a two-week low versus the euro after Bank of Japan Governor Haruhiko Kuroda said today in parliament that the central bank will keep stimulus until inflation is stable at 2 percent.
The BOJ will expand asset purchases when it announces its decision on Oct. 31, according to three of 32 economists surveyed by Bloomberg from Oct. 20-27. Nineteen forecast more easing at a later date, while 10 don’t foresee any expansion.
The rupiah fell for a fifth day on concern Indonesia will delay cutting fuel subsidies after Finance Minister Bambang Brodjonegoro said the issue wasn’t discussed at the new cabinet’s first meeting yesterday.
President Joko Widodo’s ministers didn’t specifically talk about raising gasoline prices, said State Secretary Minister Pratikno, who goes by only one name. The size and timing of energy-subsidy cuts are still being calculated, Widodo said Sept. 30, after his senior adviser Luhut Panjaitan told reporters the same day that a 3,000 rupiah ($0.25) per liter increase in retail prices was probable in November.
“The market was looking for a fuel-subsidy revision soon after the cabinet is formed,” said Khoon Goh, a strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “The fact that the issue wasn’t even discussed at the cabinet meeting suggests we might not get an announcement soon, which is a disappointment.”
The rupiah fell 0.4 percent to 12,155 per dollar, the biggest decline since Sept. 29, prices from local banks show.
(An earlier version of this story was corrected to show dollar reached a high yesterday against the yen in fourth paragraph.)