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The dollar fell versus most its major counterparts after the Federal Reserve’s plan to begin a third round of asset purchases to bolster the economy raised concern the measure will debase the value of the U.S. currency.
The greenback remained lower versus the euro and yen, reaching four- and seven-month lows, as the central bank said it will expand its holdings of long-term securities with open-ended purchases of $40 billion of mortgage debt a month. Canada’s dollar and Mexico’s peso advanced as stocks and commodities rallied as the Fed upgraded its estimates for economy of the nations’ biggest trading partner. The Russian ruble gained versus the greenback after the country’s central bank unexpectedly raised policy rates.
“The market was looking for something aggressive and they do have it and so this was very close to being priced in,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “It may not be too further a dollar negative at this stage, even with it being fairly aggressive.”
Sixty-four percent of economists surveyed by Bloomberg News expected Chairman Ben S. Bernanke to announce asset purchases at this meeting, according to a Bloomberg News survey.
The dollar fell 0.5 percent to 77.46 percent at 2:02 p.m. in New York. The U.S. currency lost as much as 0.9 percent, touching the weakest level since Feb. 9. It lost 0.5 percent to $1.2968 per euro. The shared currency was little changed at 100.44 yen.
The yen reached a seven-month high versus the dollar, prompting speculation Japanese policy makers may consider market intervention to curb the strength.
Japan’s Vice Finance Minister Takehiko Nakao told reporters in Tokyo today the recent surge in the yen against the dollar has been “obviously speculative” and that Japan can’t overlook such moves.
“The intent is to bring long term U.S. yields down - that should weigh on dollar-yen and push it lower,” said Greg Anderson, the North American head of G-10 currency strategy at Citigroup Inc. in New York. “The only mitigating factor if equities rally then that helps dollar-yen a little bit. It will put a little bit more pressure on the minister of finance and we’ll see how they respond.”
Japanese Finance Minister Jun Azumi ordered currency intervention on Oct. 31, after the yen strengthened to a post- war record 75.35 per dollar.
The Dollar Index fell a third day, declining 0.5 percent to 79.343. It touched 79.331, the lowest since May 4.
“The dollar has sold off a lot in the lead up to this and risk had been bought,” “I think you’ll see the dollar regain some of its losses, more broadly.”
“The Dollar Index is very oversold, with weekly relative strength indices and stochastic back to 2008-2012 levels, which have preceded explosive rebounds,” Callum Henderson, global head of currency research at Standard Chartered in Singapore, wrote in a note to clients yesterday.
Stochastics, a technical analysis tool based on momentum measures, are often used to identify whether a security’s price is overbought or oversold.
The Dollar Index tumbled 1.3 percent on Nov. 25, 2008 when the central bank first committed funds to quantitative easing. It was little changed on Aug. 27, 2010, when Bernanke hinted intent for a second round of monetary easing in Jackson Hole, Wyoming. It fell 6.8 percent between then and Nov. 1 of that year when the purchases began.
“If the outlook for the labor market does not improve substantially, the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate,” the Federal Open Market Committee said today in a statement at the end of a two-day meeting in Washington.
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. The Fed said “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
FOMC participants upgraded their estimate for 2013 gross domestic product growth to 2.5 percent to 3 percent, compared with 2.2 percent to 2.8 percent in June. Estimates for 2014 are from 3 percent to 3.8 percent, versus 3 percent to 3.5 percent in the previous forecast, according to the central tendency forecasts, which exclude the three highest and three lowest of 19 projections.
The ruble extended gains against the dollar after the country’s central bank raised the refinancing rate to 8.25 percent from 8 percent, the first increase since April 2011. The overnight auction-based repurchase rate will rise to 5.5 percent from 5.25 percent and the overnight deposit rate to 4.25 percent from 4 percent, effective tomorrow.
The currency rose 0.8 percent to 31.2321 per dollar. It gained 0.7 percent to 40.3204 per euro.
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