The dollar fell against all of its most-traded counterparts as Federal Reserve officials made statements encouraging speculation the central bank will increase purchases of U.S. debt to keep interest rates low.
The greenback declined for the third consecutive week against the euro to a six-month low as rhetoric from the Fed damped demand for U.S. assets. Asian currencies and the Australian and New Zealand dollars had five-day gains against the U.S. dollar as investors searched for higher yields. The yen strengthened 1.1 percent against the dollar as Japanese officials said they are prepared to sell more of the nation’s currency to prevent a return to a 15-year high.
“The dollar seems to be the ugliest girl at the dance,” said Lane Newman, director of foreign exchange at ING Groep NV in New York. “The main catalyst for dollar weakness would be communication from the Federal Open Market Committee this week that quantitative easing is on the table and the euro has gone from the worst currency to own to the best on the back of ‘anything but the big dollar.’”
The dollar declined 2.2 percent to $1.3790 per euro, the weakest level since March 17, from $1.3492 last week. The euro was the strongest weekly performer against major currencies.
The U.S. currency weakened to 83.27 yen, from 84.21 yen the previous week. It touched 83.16 yen yesterday, the lowest level since Japan intervened in foreign-exchange markets on Sept. 15. The euro advanced 1 percent to 114.81 yen, from 113.62 yen.
The greenback fell against the euro for the fourth straight day yesterday as 9 out of 45 economists revised up their fourth quarter euro projections against the dollar, pushing the median forecast for the pair to $1.30, from $1.29 the week before.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against six major counterparts, extended its biggest monthly drop since June 2009. The Dollar Index declined 5.4 percent in September, the biggest monthly decline since May 2009 when it fell 6.2 percent.
“The common denominator of this renewed vigor in yield appetite is the selloff in the dollar,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., world’s largest custodial bank, with more than $20 trillion in assets under administration. “It is looking like the U.S. policy makers are following a pattern of benign neglect toward the U.S. dollar.”
Revisiting Sept. 15
The yen traded near the strongest levels against the dollar since the Bank of Japan stepped in Sept. 15 to sell the currency in an attempt to weaken its value to protect an export-led economic recovery.
Japan’s Prime Minister Naoto Kan said yesterday he’s prepared to resume selling the country’s currency to prevent it from strengthening and called on the nation’s central bank to do more to bolster an economy threatened by deflation.
A report showed Japan last month spent $25 billion intervening in the foreign exchange market to combat the yen’s climb to a 15-year high against the dollar at 82.88.
Speeches by Fed officials continued to fuel speculation about more assets purchases by the central bank.
Fed Bank of Chicago President Charles Evans, speaking at a conference in Rome Oct. 1, said further monetary accommodation may be “desirable” to help boost the flagging U.S. recovery.
Atlanta Fed President Dennis Lockhart said Sept. 28 in text of a speech in Sewanee, Tennessee, that the debate about another round of asset purchases will “intensify” soon.
Next week, U.S. nonfarm payrolls are forecast to include a 77,000 gain in private payrolls in September, after a 67,000 increase in August. The Labor Department report is scheduled Oct. 8.
Asian currencies completed a fifth weekly advance, the longest winning streak since March, as global funds pumped more money into Asian assets to profit from the world’s fastest economic growth.
South Korea’s won led gains with a 2.2 percent weekly jump to 1,130.45 per dollar. The won touched a four-month high of 1,130.03 yesterday on speculation the central bank will raise interest rates in October.
The Bloomberg-JPMorgan Asia Dollar Index climbed to a two- year high after the Asian Development Bank this week raised its 2010 growth forecast for Asia excluding Japan to 8.2 percent, from an April estimate of 7.5 percent.
The Australian and New Zealand dollars each rose 1.4 this week against the greenback as investors looked for higher interest rates. Benchmark rates are 4.5 percent in Australia and 3 percent in New Zealand. The Fed has kept its benchmark at a range of zero to 0.25 percent since December 2008.
The Bloomberg Correlation-Weighted Currencies Indices show the dollar has declined 2.4 percent this year against a basket of currencies from 10 developed-world nations, while the yen is up 10.4 percent and the euro is down 6.4 percent.
The Swiss franc gained 1 percent against the greenback finishing the week at 0.0938 per dollar. The currency touched a record high of 0.9709 Sept. 30 as investors sought to avoid the volatility of the dollar.
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