Euro Approaches 8-Week High Versus Dollar Before Bernanke

by Emma Charlton - Aug 31, 2012 6:56 PM GMT+0800


The dollar fell to an eight-week low against the euro before Federal Reserve Chairman Ben S. Bernanke delivers his annual speech on monetary policy at the central bank’s symposium in Jackson Hole, Wyoming.
The U.S. currency weakened against all but two of its 16 major counterparts after Atlanta Fed President Dennis Lockhart said yesterday the central bank has a tough decision on whether to add further stimulus to promote a stronger economic recovery. Bernanke’s address in 2010 preceded a second round of quantitative easing to support growth. Sweden’s krona rose by the most in two weeks against the greenback amid demand for higher-yielding assets.

 “The market is getting positioned for a dovish Bernanke, so the dollar is under pressure,” said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. “There’s a lot of uncertainty about what he might say, so the market will be a bit choppy until then. If he’s not dovish at all, then the dollar will rally.” The dollar fell 0.7 percent to $1.2790 per euro at 6:49 a.m. New York time after dropping to $1.2595, the weakest level since July 4. The U.S. currency depreciated 0.1 percent to 78.57 yen. The euro gained 0.6 percent to 98.90 yen. The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, fell 0.5 percent to 81.296, extending this month’s decline to 1.6 percent.

Fed Buying

Bernanke will deliver his speech at 10 a.m. New York time. The Fed has bought $2.3 trillion of assets in two rounds of the stimulus known as quantitative easing starting in 2008. Many policy makers said additional measures would probably be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting released on Aug. 22. They next meet on Sept. 12-13. “The only game in town today is Bernanke speaking at Jackson Hole,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London.

 “Bernanke will probably outline the tools that the Fed has at its disposal. Any disappointment might push the dollar higher and risk currencies lower.” The dollar has declined 4.1 percent over the past three months, the second-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen fell 4.5 percent and the euro dropped 2.2 percent. Factory Orders The U.S. currency also weakened before a government report forecast to show factory orders climbed last month, damping demand for safer investments al-align: baseline;"> Orders rose 2 percent, the most since December, according to a Bloomberg News survey before the Commerce Department report. A final reading for the Thomson Reuters/University of Michigan confidence index will confirm the gauge increased this month to the highest since May, economists said.

 More stimulus “is a close call, really,” Lockhart, who votes on monetary policy this year, said yesterday in a CNBC interview from Jackson Hole. “I am not overly concerned with the longer-term costs of more action but at the same time I see limited benefit from more action.” The euro rose versus the dollar and yen even after a report showed unemployment in the region was at a record in July. The jobless rate in the economy of the 17 nations using the euro was 11.3 percent in July, the same as in June, the European Union’s statistics office in Luxembourg said. That’s the highest since the data series started in 1995.

 Spain is considering pumping its own money into Bankia group to re-capitalize the country’s biggest nationalized lender rather than use the emergency portion of a 100 billion-euro bailout from the European Union, two people with direct knowledge of the matter said. Sweden’s krona advanced 0.8 percent to 6.6346 per dollar after strengthening as much as 0.9 percent, the most since Aug. 14. It gained 0.2 percent to 8.3505 per euro. ght: 1.6em; outline: 0px; padding: 10px 0px; vertical-align: baseline;"> The krona is the best performer over the past three months according to Bloomberg Correlation-Weighted Indexes, appreciating 6.1 percent.

To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net