Dollar Falls to 4-Month Low Versus Euro on Fed; Yen Lower

The dollar slid to a four-month low against the euro on Federal Reserve Chairman Ben S. Bernanke’s plan to conduct open-ended monetary easing, steps that tend to debase the U.S. currency
The euro was set for the longest stretch of weekly gains against the yen in three years as Asian stocks climbed to the highest level since May, boosting demand for riskier assets. The yen retreated from a seven-month high against the greenback after comments by Japan Finance Minister Jun Azumi signaled he’s ready to intervene to weaken the currency. Singapore’s dollar climbed to a one-year high.
“Bernanke made a very strong case for engaging in quantitative easing,” said Andrew Salter, a strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “We’re going to see the shock-waves from this policy in the U.S. dollar for a foreseeable period of time.”

The dollar slid to $1.3016 per euro, the weakest since May 8, and traded at $1.3010 as of 12:08 p.m. in Tokyo from $1.2991 at the close in New York yesterday. The yen lost 0.2 percent to 77.61 per dollar after advancing to 77.13 yesterday, a level unseen since Feb. 9. The euro climbed 0.3 percent to 100.98 yen, the highest since July 2.
For the week, the U.S. currency has lost 1.5 percent against the euro and 0.8 percent versus the yen. The euro has risen 0.7 percent against the Japan’s currency, a fifth weekly advance that’s the longest since March 2009.

The MSCI Asia Pacific Index (MXAP) of shares climbed 1.9 percent to a level unseen since May 4. The Standard & Poor’s 500 Index of U.S. stocks rose 1.6 percent yesterday to reach its highest close since December 2007.
The implied volatility of three-month options for Group of Seven currencies fell to 7.75 percent, an almost five year low, according to JPMorgan Chase & Co.’s G7 Volatility Index.

Fed Easing

The Fed said it will expand its holdings of long-term securities with open-ended purchases of $40 billion a month of mortgage debt in a third round of quantitative easing. The U.S. central bank will continue buying assets, undertake additional purchases and employ other policy tools as appropriate “if the outlook for the labor market does not improve substantially,” the Federal Open Market Committee said yesterday in a statement.
The FOMC said it would probably hold the federal funds rate near zero “at least through mid-2015.” Since January, the Fed had said the rate was likely to stay low at least through late 2014.

Yen Intervention

Japan’s Azumi told reporters today that he’ll take “decisive action” if necessary. The FOMC decision reflects concern about U.S. economy, which he’s watching “carefully,” he said.
Azumi ordered the Bank of Japan (8301) to sell yen in markets on Oct. 31 after the yen strengthened to a post-war record of 75.35 per dollar.

“The FOMC is actively trying to engage in a policy of a weaker currency, and that is having an effect in other markets, of which the yen is one,” ANZ’s Salter said. “It’s pushing up against the tolerance of the Ministry of Finance” in Japan.

Singapore’s dollar reached S$1.2230 per greenback today, the strongest since Sept. 9, 2011. The Australian and New Zealand dollar both advanced more than 0.2 percent.
Demand for the euro was limited before a German report on Sept. 18 that may show investor confidence in the euro region’s biggest economy remains weaker.

The ZEW Center for European Economic Research is forecast to say its index of investor and analyst expectations, which aims to predict economic developments six months in advance, was minus 20 in September, according to a Bloomberg News survey of economists. The gauge slid to minus 25.5 the prior month, the lowest this year.

“In the medium-to-long term, euro-dollar is in a gradual downward trend,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “The growth outlook for the euro region is far weaker than that of the U.S.”
Euro-area finance ministers and central-bank officials will hold a two-day policy meeting starting today in Cyprus to discuss the next steps in tackling the region’s debt crisis.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net