Bloomberg News

Dollar Falls on Fed Stimulus Signal, Euro Gains After Italy Vote

July 14, 2011

July 14 (Bloomberg) -- The dollar weakened against the majority of its most-traded counterparts after Federal Reserve Chairman Ben S. Bernanke said the central bank is prepared to take additional action to boost the U.S. economy.

The euro gained as the Italian Senate approved an austerity package aimed at balancing the budget in 2014 and U.S. retail sales stagnated in June. The greenback fell against higher- yielding currencies as Bernanke began his second day of testimony to Congress. New Zealand’s dollar rose to a record against the dollar after a larger-than-forecast gain in gross domestic product.

“The dollar is suffering from the overhang from Bernanke’s offer to do more if necessary,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “If you get bad data out of the U.S., that’s for the time being going to be bad for the dollar under an implicit assumption that there is another round of easing coming.”

The dollar was 0.2 percent lower at $1.4190 per euro at 10:39 a.m. from $1.4167 yesterday, when it slid 1.4 percent, its biggest loss since Jan. 13. It fell as low as 78.47 yen, the least since March 17, before rebounding to trade little changed at 79.16 yen. Japan’s currency weakened 0.4 percent to 112.31 per euro, from 111.86.

Kiwi, Rand

New Zealand’s currency rose 1.2 percent to 84.72 U.S. cents after reaching 85.07 U.S. cents, the strongest since it was freely floated in 1985.

New Zealand’s economy expanded 0.8 percent in the three months ended March 31 from the previous quarter, the government statistics agency said in Wellington. The central bank forecast growth of 0.3 percent.

South Africa’s rand fell to its lowest level in more than a week against the euro and declined versus the dollar on concern strikes by steel, engineering and energy workers will slow growth in Africa’s biggest economy.

The rand slipped as much as 1.4 percent to 9.7801 per euro, the weakest level since July 5, before trading at 9.7486. South Africa’s currency retreated 0.8 percent against the dollar to 6.851.

The dollar remained lower after sales at U.S. retailers stagnated in June, increasing 0.1 percent, according to the Commerce Department in Washington.

Fed Update

Bernanke began testimony to U.S. lawmakers today, speaking before the Senate, after appearing before the House Financial Services Committee yesterday. The Fed is prepared to take additional action if the economy appears to be in danger of stalling, he said yesterday.

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners including the euro, yen and pound, slid 0.4 percent to 74.884.

The U.S., rated Aaa by Moody’s since 1917, was put on review for the first time since 1996 on concern the nation’s debt threshold will not be raised in time to prevent a missed payment of interest or principal on outstanding bonds and notes, even though the risk is low, Moody’s said yesterday.

The euro gained against all but the New Zealand dollar after Prime Minister Silvio Berlusconi won a confidence vote in the Italian Senate, paving the way for final passage of the plan tomorrow. The 17-nation currency earlier weakened after Italian government bonds slumped as borrowing costs rose to a three-year high at a sale of five-year debt.

Gold Rises

Gold rose to a record as concern the Fed may embark on additional stimulus boosted demand for the metal as a store of wealth. Immediate-delivery gold rose as much as $11.73, or 0.7 percent, to $1,594.10 an ounce.

The Swiss franc weakened 0.3 percent to 1.1618 per euro after reaching 1.1495, an all-time high. It also touched a record 80.83 centimes per U.S. dollar, before trading little changed at 81.64.

“Against the backdrop of joint European Union and U.S. woes, the recent outperformance of the franc, the yen and gold is understandable and likely to persist,” BNP Paribas SA strategists including Ray Attrill and Steven Saywell wrote in an investor report today.

Swiss central bank Vice President Thomas Jordan said policy makers are “very concerned” about recent currency developments after the franc appreciated to a record against the euro.

--With assistance from Chris Fournier in Halifax. Editor; Paul Cox, Greg Storey

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net Paul Dobson in London at pdobson2@bloomberg.net.

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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