Dollar Drops to lowest levels

[Neil D]

By Allison Bennett and Catarina Saraiva - Sep 22, 2010 6:45 AM PT

The dollar fell to the lowest level in six months versus a basket of currencies including the euro and yen on speculation the Federal Reserve’s willingness to ease monetary policy further will damp demand for U.S. assets.

The greenback weakened after U.S. policy makers said yesterday that they “will provide additional accommodation if needed” to spur growth. The yen strengthened for a third day to levels that may trigger more selling by the Japanese government. The euro rose versus the dollar to the strongest since April 21 as Portugal sold 750 million euros ($1 billion) of bonds. Gold futures reached a record high.

“It’s going to be a continuation of yesterday -- the Fed’s plan to have more liquidity,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo, New York. “I think their statement alone hurts the U.S. dollar on yield.”

The dollar slid 1.2 percent to $1.3426 per euro at 9:37 a.m. in New York, from $1.3264 yesterday, after reaching $1.3440. The U.S. currency dropped 0.7 percent to 84.50 yen, from 85.09. The euro climbed 0.5 percent to 113.44 yen, from 112.87.

The Standard & Poor’s 500 Index fell 0.2 percent. Gold for December delivery touched an all-time high of $1,296.50 an ounce.

Stocks, Gold

“Stocks are down on greater concern of a U.S. slowdown and gold is at a record high, telling you currency is on the outs,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The euro is the primary alternative to the investors selling the pound and the dollar.”

Declines in the U.S. currency accelerated after InterContinentalExchange Inc.’s Dollar Index fell below 80 for the first time since March 18, sparking some traders to unwind bets on a gain, according to Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London.

The gauge of the greenback against the currencies of six major trading partners including the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona fell 0.8 percent to 79.837 after touching 79.719, the lowest since March 17.

The dollar fell to 98.66 against the Swiss franc, the lowest level since March 2008. The franc traded at 1.3243 versus the euro.

Fed Stand

The Federal Open Market Committee said in a statement after its meeting yesterday in Washington that “inflation is likely to remain subdued for some time before rising to levels the committee considers consistent with its mandate.”

The Bank of England signaled that policy makers are moving closer to adding more stimulus to the economy, joining the Fed in contemplating further bond purchases to revive a flagging recovery. The Monetary Policy Committee, led by Governor Mervyn King, voted 8-1 to keep the benchmark interest rate at 0.5 percent and the bond-purchase plan at 200 billion pounds ($313 billion).

The pound fell 0.9 percent to 85.63 pence per euro, the weakest level since May 26.

“I’m not surprised gold is at a record high -- it’s people hedging the Fed, the Bank of England and Japan trying to intervene,” said Aneta Markowska, an economist at Societe Generale in New York. “The presser for the yen is going to be for appreciation. They still have an external surplus so the fundamentals will put upward pressure on the yen.”

Japan Sales

Demand for the yen may have been tempered by speculation Japan will sell its currency again after intervening in the foreign-exchange market on Sept. 15 for the first time in more than six years. The yen has risen about 1 percent since the intervention pushed the currency down to a one-month low from a 15-year high.

The central bank is monitoring the yen’s strength, which is an impediment to the nation’s economic recovery, a Bank of Japan board member, Ryuzo Miyao, said today. He also said the bank plans to take appropriate credit-easing steps if needed.

Prime Minister Naoto Kan said Japan should put in place economic and monetary policies to weaken the yen, the Financial Times reported today, citing an interview.

The euro rose for a third day against the dollar as investors bid for 3.5 times the amount of securities maturing in October 2014 offered by Portugal’s debt agency, compared with 3.1 times in July.

Portugal Bonds

Portugal also sold 300 million euros of bonds due in June 2020, leaving the total for the auction at the low end of the range of 750 million euros to 1 billion euros set for the sale.

The auction results “suggest that concerns are abating,” Steven Englander, New York-based head of Group of 10 currency strategy at Citigroup Inc., wrote in a note yesterday.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 9,644 on Sept. 14 compared with net shorts of 23,699 a week earlier, data from the Commodity Futures Trading Commission showed on Sept. 17.

Norway’s krone rose 0.2 percent to 7.8864 per euro, erasing earlier losses, after the nation’s central bank left its benchmark interest rate unchanged at 2 percent for a third meeting today. The Norges Bank has scaled back tightening plans to adjust to the prospect of a slower recovery in global export markets.

The krone earlier traded at 5.834 per dollar, the strongest since April 27.

The New Zealand dollar rose before a report tomorrow that economists said will show the nation’s economic growth accelerated. The kiwi gained 0.7 percent to 74.04 U.S. cents.

Surely there is a speculator or two in here that can interpret these reponses to the dollar....

[jasd]

QR frame:

Okaayyy, so have y'all bought your physical silver yet?

Fer cryin' out loud!--whatcha waitin' fer!?

Oh, yeah, buy your foodstuff first...

[Bravus]

Yeah, the Aussie is up compared to the US both for Aussie and US reasons. That also tends to mean the Aussie is up relative to the Canadian, which is good because we have some debt still in Canada that we're paying off but we're earning Aussie dollars.

In general, the value of the dollar is kind of 'swings and roundabouts': there are benefits to it being low as well as to it being high. Among other things, it makes imports more expensive and locally made goods more competitive... which is something that can't hurt the American economy.