The dollar declined against most of its major peers before the policy-setting Federal Open Market Committee starts a two-day meeting tomorrow.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against those of six U.S. trading partners, slid toward a four-month low amid speculation theFederal Reserve will announce a third round of asset purchases known as QE3, which tend to debase the currency. Demand for the euro was limited before reports this week forecast to show French payrolls declined and European industrial production contracted amid concern the sovereign-debt crisis is constraining growth.
“It’s highly likely that additional easing will be announced at the FOMC meeting,” said Yoshitsugu Fujita, assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “Should QE3 be announced, the dollar will be sold and probably continue to weaken.”
The dollar slid 0.1 percent to 78.20 yen as of 12:24 p.m. in Tokyo from yesterday. The greenback lost 0.2 percent to $1.2778 per euro from yesterday. The euro was little changed at 99.92 yen from yesterday, when it fell 0.4 percent.
The Dollar Index slid 0.1 percent to 80.3 from yesterday. The index on Sept. 7 touched 80.151, the lowest since May 11.
The Fed bought $2.3 trillion of securities from 2008 to 2011 in two rounds of so-called quantitative easing. In an Aug. 31 speech, Fed Chairman Ben S. Bernanke defended his unprecedented policies and laid out arguments for further action to combat unemployment, which he called a “grave concern.”
Lower Volatility
The implied volatility of three-month options for Group of Seven currencies fell to 7.83 percent yesterday, the lowest since October 2007, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.
A final reading on French non-farm payrolls will probably confirm a 0.1 percent decline in the second-quarter from the previous three-month period, according to the median estimate of economists surveyed by Bloomberg News before the national statistics office Insee releases its figures today.
Economists in a separate Bloomberg poll estimate euro-area industrial production declined 3.3 percent in July from a year earlier. The European Union’s statistic office in Luxembourg will report the data tomorrow.
Euro Bearish
“We’re bearish on the euro” in the six-month period, said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “We see the risks to the euro-zone economies to the downside.”
Greek Democratic Left leader Fotis Kouvelis, whose party is one of the three in the coalition government, said no decision had been made on spending cuts and that poorer citizens must be protected from austerity measures. The leaders of the three parties agreed to meet again tomorrow, two days before euro-area finance ministers gather in Cyprus for a briefing on Greek progress.
German-led austerity demands are “pushing Europe into a deeper and longer depression,” billionaire investor George Soros said in Berlin yesterday. “It’s all too real in the periphery and it will reach Germany in the next six months or so.” The country’s “policies largely determine the outcome of the current crisis. It’s five minutes after midnight,” Soros said.
Germany’s Federal Constitutional Court is due to rule tomorrow on the country’s participation in the European Stability Mechanism, a permanent 500 billion-euro ($638 billion) fund that offers loans to member states and may buy their bonds to lower borrowing costs. Germany will be the biggest contributor to the fund with a 27 percent share, a statement from the European Commission shows.
-- Editors: Jonathan Annells, Ken McCallum
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