The dollar fell against 15 of its 16 major peer amid speculation Federal Reserve policy makers may signal additional stimulus when they conclude a two-day meeting that starts today.
The greenback fell to a four-month low against its Australian counterpart as Asian shares gained for a fourth day, boosting demand for riskier assets. The euro rose against the yen and the dollar before the European Central Bank meets on Aug. 2.
“The market is pricing in about an 80 percent chance of QE3 sometime in the future,” said Yasuhiro Kaizaki, vice president of global markets at Sumitomo Mitsui Trust Bank in New York, referring to a third round of asset purchases, known as quantitative easing. “The easiest thing the Fed could do at this point is to change its language on leaving rates low until 2014. That could lower U.S. interest rates and push the dollar- yen rate down as the yield spread between the U.S. and Japan narrows.”
The U.S. dollar bought 78.21 yen as of 12:17 p.m. in Tokyo from 78.18 yesterday, when it declined 0.4 percent. The greenback has lost 2 percent this month. It touched $1.0537 per so-called Aussie, the weakest since March 27, before trading at $1.0525, 0.2 percent lower than yesterday’s close. The U.S. currency slid 0.2 percent to $1.2285 per euro from yesterday, trimming its monthly advance to 3.1 percent. The 17-nation euro added 0.2 percent to 96.07 yen, set for a 4.9 percent slide in July.
Fed Chairman Ben S. Bernanke said this month policy makers are “looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.”
While the central bank refrained from introducing a third round of asset purchases at its June meeting, Bernanke indicated it’s an option. The Fed bought $2.3 trillion of securities from 2008 to 2011 to spur growth.
In Australia, the number of permits granted to build or renovate houses and apartments fell 2.5 percent in June from the previous month, when they gained a revised 27 percent, the Bureau of Statistics said in Sydney today. The decline was smaller than the 15 percent drop predicted by economists in a Bloomberg News survey.
The MSCI Asia Pacific Index (MXAP) of stocks rose 0.9 percent, extending a 3.9 percent three-day gain.
Demand for the euro was supported after ECB President Mario Draghi pledged last week to do whatever it takes to preserve the euro, suggesting policy makers may intervene in bond markets.
His proposal involves the European Financial Stability Facility buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB interest-rate cuts and long-term loans to banks are also up for discussion, one of the officials said.
“The ECB may announce further stimulus measures and these can suppress the European bond yields,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “It may create short- term spikes in the euro.”
U.S. Treasury Secretary Timothy Geithner and German Finance Minister Wolfgang Schaeuble yesterday backed a commitment by European leaders to defend the euro area, while failing to mention its weakest link, Greece.
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