Tags: Dollar | Drops | 15-Year | Low | Yen | Fed | Beige

Dollar Drops to 15-Year Low Versus Yen Before Fed’s Beige Book

Wednesday, 20 October 2010 12:49 PM

The dollar dropped to a 15-year low against the yen and fell the most versus the euro since July on concern the Federal Reserve’s regional business survey will show a slowing recovery, damping demand for the U.S. currency.

The greenback slid against most of its major counterparts before the release of the Beige Book report as traders speculated the central bank will increase purchases of government debt to support the economy. The dollar rose yesterday for a third day as China’s unexpected increase in borrowing costs discouraged risk demand.

“After a small correction over the last couple of days, you’re seeing people get back to the theme of shorting the dollar,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “Everyone seems to be focused on quantitative easing and the Fed’s Beige Book.”

The dollar fell 0.6 percent to 81.08 yen at 12:35 p.m. in New York, from 81.58 yesterday, after dropping to 80.85, the lowest level since April 1995. The dollar depreciated 1.7 percent to $1.3963 per euro, from $1.3727 yesterday, after sliding 1.9 percent in the biggest intraday drop since July 1. The euro gained 1.1 percent to 113.22 yen, from 112 yen.

The dollar extended its losses on speculation a report by Medley Global Advisors, a consulting firm used by hedge funds, said the Fed will buy back more assets than expected. Hannah Little, a spokeswoman at Medley, declined to comment.

“There’s a report out that suggests that we might see far greater quantitative easing,” said John McCarthy, director of currency trading at ING Groep NV in New York. “That in essence caused the dollar to sell off.”

Drop in Pound

Sterling slid 0.7 percent to 88.04 pence per euro as Chancellor of the Exchequer George Osborne detailed the deepest budget cuts ever in Britain. The government is poised to eliminate 500,000 public-sector jobs and impose a levy on banks to extract the “maximum sustainable” revenue.

Minutes of the Bank of England’s last meeting showed policy makers voted 7-1-1 to keep the benchmark interest rate at 0.5 percent and the bond-purchase plan at 200 billion pounds ($315 billion).

Canada’s currency rose for the first time in five days, adding 1 percent to C$1.0235 per U.S. dollar as a gain in stocks and raw materials indicated demand for assets related to economic growth. The loonie has dropped 2.5 percent since trading stronger than parity with the greenback on Oct. 14 for the first time since April.

U.S. stocks rose, pushing the Standard & Poor’s 500 Index up 1.3 percent. Crude oil for November delivery increased 2.5 percent to $81.45 a barrel.

Brazilian Real

The real rose for the first time in five days, gaining 0.4 percent to 1.6762 per dollar. Brazil’s central bank will keep its benchmark overnight rate unchanged at 10.75 percent today, according to all 51 analysts in a Bloomberg News survey.

Brazil stepped up on Oct. 18 efforts to curb gains in the real by announcing an increase in inflow taxes, saying it may be forced to take additional measures as Finance Minister Guido Mantega called for an end to the worldwide “currency war.”

The Australian dollar rose for the first time in four days as traders used its drop to the lowest level in two weeks to buy the currency on speculation the nation’s central bank will raise interest rates.

The Aussie rose 1 percent to 97.79 U.S. cents, from 96.86 cents yesterday, when it touched 96.62 cents, the least since Oct. 5. It reached parity with the greenback on Oct. 15 for the first time since exchange controls were removed in 1983.

Merkel’s View

The euro was supported versus the dollar as Germany’s Chancellor Angela Merkel said in Berlin that governments must find an “exit strategy” from stimulus spending as the global financial crisis recedes.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen, pound and Canadian dollar, fell 1.4 percent to 77.107.

The gauge of the greenback has dropped 10 percent since the end of June on speculation the Fed will increase asset purchases in a practice known as quantitative easing.

Chicago Fed President Charles Evans said yesterday in Evanston, Illinois, that the central bank will need to buy securities on a large scale several times to carry out his preferred strategy of aiming to raise inflation temporarily. The Beige Book is due to be released at 2 p.m. New York time.

“I expect the Beige Book to indicate further softness in economic activity throughout the country as 10 percent unemployment continues to be a major hurdle for economic growth,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration.

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The dollar dropped to a 15-year low against the yen and fell the most versus the euro since July on concern the Federal Reserve s regional business survey will show a slowing recovery, damping demand for the U.S. currency.The greenback slid against most of its major...
Wednesday, 20 October 2010 12:49 PM
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