Bloomberg News

Euro Approaches 8-Week High Versus Dollar Before Bernanke

August 31, 2012

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 one 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 three weeks against the greenback amid demand for higher-yielding assets.

“The move is explicitly about positioning ahead of a potentially dovish Bernanke speech and a signal for QE3,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. (WBC) in New York, said in a telephone interview. “It will be very difficult for him to over-deliver and for the euro to rally further against the dollar. The risk of disappointment is now quite elevated.”

The dollar fell 0.9 percent to $1.2620 per euro at 8:44 a.m. New York time after dropping to $1.2628, the weakest level since July 2. The U.S. currency depreciated 0.3 percent to 78.40 yen. The euro gained 0.7 percent to 98.98 yen.

The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six major trading partners, fell 0.8 percent, extending this month’s decline to 1.9 percent.

Krona, Rand

Sweden’s krona advanced 1.3 percent to 6.6064 per dollar, the most since Aug. 14, after gaining as much as 1.5 percent, the most since Aug. 3.

The krona is the best performer over the past three months according to Bloomberg Correlation-Weighted Indexes, appreciating 6.5 percent. The euro decreased 2.2 percent over the same period while the greenback slipped 4.4 percent. The yen led all decliners with a 4.5 percent drop.

The South African rand gained, rebounding from a five-week low against the dollar, as commodity prices rallied on stimulus speculation. The currency rose 0.7 percent to 8.4165 per dollar after having increased as much as 1.1 percent.

The pound is set for a monthly gain versus the greenback as a report showed U.K. house prices rose in August, easing concern that the recession is worsening. The British currency rose 0.6 percent to $1.5883.

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 U.S. currency also weakened before a government report forecast to show factory orders climbed last month, damping demand for safer investments.

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.

‘Close Call’

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.

To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

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


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