The dollar declined versus most of its major peers after Federal Reserve Chairman Ben S. Bernanke said inflation and unemployment rates signal the U.S. economy needs more stimulus.
The greenback fell to one-week lows against the euro and the yen after minutes of the Fed’s last meeting showed many policy makers want to see more signs employment is picking up before they’ll begin slowing bond purchases. The yen slid against the Aussie and kiwi currencies as the Bank of Japan meets amid signals the nation’s economy is gaining.
The “dollar is taking back some of the exuberance of the past few days,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut. “The comment that inflation and jobs signal more Fed stimulus is needed is causing the market to react a little bit, perhaps taking out some of the hawkishness that was in asset prices in fixed income and foreign exchange.”
The dollar slid 0.5 percent to $1.3040 per euro at 7:24 a.m. Tokyo time and touched $1.3043, the least since July 2. It had reached $1.2755 on July 9, the strongest since April 4. Japan’s currency appreciated 0.6 percent to 99.07 per dollar, and touched 98.96, the highest level since June 28. The yen was little changed at 129.22 per euro.
“Highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy,” Bernanke said yesterday in response to a question after a speech.
U.S. unemployment, at 7.6 percent, hasn’t been below 7 percent since November 2008. The consumer price index is forecast to end the year at 1.5 percent, from 2.1 percent in 2012, according to economists surveyed by Bloomberg. That compares with the Fed’s 2 percent inflation target.
The Bloomberg Dollar Index (BBDXY), which monitors 10 major currencies, fell 0.4 percent to 1,049.12 yesterday after the minutes of the June 18-19 Federal Open Market Committee meeting were released in Washington. It climbed to 1,056.33 on July 8, the highest since June 30, 2010, on an intraday basis.
“Many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases,” according to the FOMC minutes.
The minutes also said that, in a discussion about the appropriate path of the balance sheet among the 19 participants, “about half” indicated “it likely would be appropriate to end asset purchases late this year,” and that “many other participants anticipated that it likely would be appropriate to continue purchases into 2014.”
“We have the market taking a view that the minutes were somewhat dovish,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview.
The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on borrowing costs in the third round of its quantitative-easing stimulus program. The purchases tend to devalue the U.S. currency.
Bernanke told reporters after the June meeting that the central bank may begin to slow the buying this year and end it in 2014 if economic growth meets policy makers’ expectations.
The Fed chief said at a National Bureau of Economic Research conference that a drop in the jobless rate to 6.5 percent wouldn’t necessarily trigger an increase in the key interest rate, which has been held at virtually zero since 2008.
Bank of Japan Governor Haruhiko Kuroda and his fellow policy makers will talk about upgrading their assessment of the nation’s economy by using the word “recover” for the first time in more than two years, according to people familiar with the central bank’s discussions. The bank concludes its two-day meeting today.
“The market has come to the conclusion that maybe there won’t be so much additional easing from the Bank of Japan down the line,” said Jane Foley, a senior currency strategist at Rabobank International in London. “We can go higher in dollar-yen over the medium term. We would need another bout of dollar strength to trigger that as opposed to isolated yen weakness.”
Thirteen of 20 economists in a Bloomberg survey completed July 8 saw no extra easing of monetary policy by the BOJ in the next six months, a reversal from a poll in May. The International Monetary Fund upgraded Japan’s growth forecast this year to 2 percent from a 1.6 percent projection in April, citing the effects of a recent accommodative stance on confidence and private demand.
The yen has tumbled 21 percent in the past 12 months, the worst performer among 10 developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar has gained 1.5 percent and the euro has strengthened 8 percent.
The Aussie rose 0.2 percent to 91.62 yen, while the kiwi currency gained 0.3 percent to 78.34 yen. The Australian currency rose 0.8 percent to 92.46 U.S. cents and New Zealand’s dollar strengthened 1 percent to 79.13 U.S. cents.
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