Bloomberg News

Dollar Gains Versus Euro as Fed Stimulus Unchanged; Kiwi Climbs

October 24, 2012

The dollar gained versus the euro as the Federal Reserve maintained asset-purchase programs without suggesting it’s closer to boosting stimulus, reducing concern additional measures will debase the currency.

The shared currency fell against most major counterparts as a gauge of German business confidence sank to its lowest since February 2010. The euro’s losses were limited amid speculation Greece will get its next installment of aid. New Zealand’s dollar rose against all its most-traded peers after the central bank kept interest rates unchanged. The Fed is buying $40 billion of debt a month in a third round of quantitative easing.

“It’s still a strong-dollar environment,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “It was a clear message of steady as she goes. There have been some better numbers, and none of that is wavering their determination to follow through on QE3.”

The dollar gained 0.1 percent to $1.2974 per euro at 5 p.m. New York time and touched $1.2921, the strongest level since Oct. 15. It was little changed at 79.81 yen. Europe’s shared currency fell 0.1 percent to 103.54 yen.

The greenback has advanced 0.8 percent over the past week, the best performer after the New Zealand dollar, which climbed 1.1 percent, on the Bloomberg Correlation-Weighted Indexes. The gauges track 10 developed-nation currencies.

Sweden’s krona slid for a fourth day against the dollar after a report showed consumer confidence worsened. The National Institute of Economic Research said a sentiment index declined to negative 2.9 in October from 2 the previous month. The median prediction of economists surveyed by Bloomberg News was for 1.7.

The krona lost 0.5 percent to 6.6836 per dollar and fell 0.5 percent to 8.6709 per euro.

Kiwi Rallies

The kiwi, as New Zealand’s dollar is nicknamed, strengthened 1.1 percent to 82.04 U.S. cents and advanced 1 percent to 65.48 yen.

Reserve Bank of New Zealand Governor Graeme Wheeler left the official cash rate at a record low 2.5 percent, according to a statement today after a meeting in Wellington. Sluggish domestic demand and a rising currency have pushed inflation below the central bank’s 1 percent to 3 percent target range, had spurred speculation Wheeler might consider a rate cut.

The euro pared its decline against major counterparts after a report that officials of the European Union, European Central Bank and International Monetary Fund rejected a German proposal to tighten Greek access to an aid account. ECB President Mario Draghi said the so-called troika has made no proposals yet on Greece. The officials have discussed an agreement that would pave the way for the next payment of aid funds to the debt- stricken country.

Next Payment

“It seems extremely likely Greece will be getting its next tranche of aid,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview.

The dollar advanced versus the euro as the Ifo institute in Munich said German business confidence dropped to the lowest level in more than two years.

“I’m quite impressed with the resilience of the euro,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, said in a telephone interview. “The last time equities were trading at these type of levels, the euro was trading at the $1.26 area.”

Bond Buying

The Fed said in a statement after a two-day policy meeting that the economy is still growing modestly and unemployment remains elevated.

The central bank said its bond-buying will continue, and it maintained a pledge to hold interest rates at virtually zero until at least mid-2015. It also said a program to lengthen the average maturity of its holdings will remain in place until year-end, when it’s scheduled to expire. The effort is called Operation Twist

The greenback fell 0.7 percent against the euro on Sept. 13 after Fed policy makers announced following their last meeting a third round of large-scale asset purchases and said the buying would continue until the economic recovery is well-established. Two previous rounds of quantitative easing totaling $2.3 trillion failed to breathe life into the labor market.

Sixty-eight percent of 60 economists surveyed by Bloomberg News said the Fed chairman’s third round quantitative easing will last until January 2014.

Operation Twist, a separate program, is designed to hold down borrowing costs by lengthening the average maturity of the Fed’s holdings. The central bank swaps short-term debt in its portfolio for longer-term Treasuries.

The Dollar Index (DXY) fluctuated after a report showed sales of new homes in the U.S. rose to a two-year high in September. The gauge, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, was little changed at 80.027 after rising for the past four days. It was at 79.929 today after losing as much as 0.2 percent and gaining 0.2 percent.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net;

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


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