Dollar Declines Versus Major Peers With Fed Decision Approaching

Updated on
  • Greenback slips on risk central bank sounds 'dovish': Mizuho
  • Currency gauge ends seven-day gain streak as home sales fall
Yen Seen at 125 to 130 Per Dollar in 2016: Chandler

The dollar fell against most of its major peers, with a gauge of the currency slipping from a three-week high, as traders awaited the Federal Reserve’s policy decision.

Weakness in emerging markets may mean the U.S. central bank will sound “dovish” at its meeting ending Wednesday, which would weigh on the dollar, according to Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd. That frailty already has prompted the People’s Bank of China to lower its benchmark interest rate and helped lead the European Central Bank to indicate last week it would consider more stimulus measures.

"The risk is skewed for a slightly softer dollar tone" before the Fed meeting concludes, said Mazen Issa, senior foreign-exchange strategist at Toronto Dominion Bank in New York.

The Bloomberg Dollar Spot Index fell 0.3 percent to 1,209.08 as of 4 p.m. New York time, after seven days of gains that saw it climb to its highest since Oct. 2 at the end of last week. The index tracks the U.S. currency against 10 major peers. 

The dollar declined 0.3 percent to 121.10 yen, after rising 1.7 percent last week. The greenback fell to $1.1058 per euro, retreating from $1.0989, its strongest since Aug. 11.

Fed Decision

“Fear of the Fed will take some of the shine off the dollar this week,” Mizuho’s Jones said. “The focus will shift away from ECB and the PBOC to the Fed this week.”

U.S. data “may disappoint to the downside,” which would further act as a drag on the greenback, he said.

The dollar extended losses after a report showed sales of new U.S. homes slumped in September to a 10-month low.

The Fed will convene this week to discuss the possibility of raising its benchmark for the first time in almost a decade. Fed Governor Daniel Tarullo, who votes on rate decisions, said this month he didn’t favor an interest-rate increase in 2015 after several other officials signaled the central bank may still raise rates this year as long as the economy stays on track.

Central Banks

The probability the Fed will increase rates by its December meeting fell to 36 percent from 64 percent in mid-September, according to futures data compiled by BloombergThe calculations are based on the assumption the effective fed funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.

There’s virtually no chance of a move this week, the futures suggest.

The yen climbed against the dollar before the Bank of Japan meeting on Oct. 30. Less than half of the 36 economists surveyed between Sept. 29 and Oct. 2 said the BOJ would add to its stimulus measures this week.

If policy makers decide to hold steady at this week’s meeting, they risk driving the yen “sharply” higher against the euro, said Ray Attrill, co-head of currency strategy at National Australia Bank Ltd. in Sydney. “The ECB has upped the ante on the BOJ to act sooner, partly out of fear of a much weaker euro-yen rate if they don’t act.”