April 27, 2011,
By Allison Bennett and Anchalee Worrachate
April 27 (Bloomberg) -- The dollar dropped to a 16-month low versus the euro on speculation the Federal Reserve will signal today it will hold interest rates steady to support the U.S. economy after its bond-buying program expires in June. The greenback dropped for a seventh day in its longest losing streak since March 2009 before Fed Chairman Ben S. Bernanke gives his first press conference following a policy meeting. The yen weakened against all of its most-traded counterparts after Standard & Poor’s cut Japan’s outlook to “negative.” Australia’s currency rose to a record versus the dollar as consumer prices climbed the most since 2006, encouraging demand for assets related to economic growth.
“There is a huge assumption that the Fed is going to maintain ultra-loose policy longer than the hawks on the committee want, so the dollar is getting slammed all around,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. “Investors have a voracious risk appetite at this time. They’re picking on the weaker currencies.”
The dollar depreciated as much as 0.4 percent to $1.4714 versus the euro, the weakest level since December 2009, before trading at $1.4678 at 10:05 a.m. in New York, compared with $1.4644 yesterday. The greenback has dropped 3.5 percent this month. The yen slipped 1.3 percent to 120.91 per euro, from 119.42. Japan’s currency declined 1 percent to 82.35 versus the dollar, from 81.55.
Stronger Pound
Sterling strengthened 0.5 percent to $1.6559 as Britain’s Office for National Statistics said today that gross domestic product expanded 0.5 percent in the first quarter, boosted by a surge in the service industry.
The Aussie rallied for a second day on speculation the Reserve Bank of Australia will raise borrowing costs to contain accelerating inflation.
The consumer price index gained 1.6 percent in the three months ended March 31, the most since June 2006, the Bureau of Statistics said today. The median forecast of 26 economists in a Bloomberg News survey was for a 1.2 percent gain.
The Aussie rose as much as 0.6 percent to $1.0852, the highest level since the currency was freely floated in 1983, before trading at $1.0815. The New Zealand dollar advanced as much as 0.6 percent to 81.08 U.S. cents, the strongest level since March 2008.
‘Solution in Europe’
“You’re looking at risk being put back into the market, which is great for currencies like the Aussie, kiwi and euro,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust in Buffalo, New York. “People in this market believe that there’s really going to be a solution in Europe, and that’s why you don’t see the euro responding to widening periphery spreads.”
The euro remained higher against the greenback after a report showed European industrial orders gained for a fifth consecutive month in February.
Aiming to keep annual inflation below 2 percent, the European Central Bank raised its main refinancing rate this month by a quarter-percentage point to 1.25 percent. It left the door open for more increases even as nations such as Greece, Ireland and Portugal struggle to contain sovereign-debt turmoil.
Greek two-year yields rose above 25 percent for the first time, while 10-year bond yields advanced to euro-era highs for a ninth consecutive day. Greece isn’t considering restructuring its debt, said a Finance Ministry press officer via email, who cited government policy in asking not to be identified.
Dollar Index
IntercontinentalExchange’s Dollar Index, which tracks the greenback against the currencies of six major trading partners including the euro, dropped 0.1 percent to 73.741 after touching 73.493, the lowest level in more than two years.
The U.S. central bank began a two-day policy meeting yesterday that will be followed today by the Fed’s statement and Bernanke’s press conference.
Fed officials will probably prepare to pull back from record stimulus by dropping a pledge this year to hold the main interest rate near zero for an “extended period,” according to a Bloomberg News survey.
Thirty-three of 44 economists surveyed said the central bank will remove the two-word phrase from its post-meeting statement in 2011, with 18 betting it will move by September. The Fed may wait until 2012 to announce sales of mortgage or Treasury securities it bought to reduce borrowing costs, with 26 respondents expecting a plan next year, according to the survey,
The yen has weakened 5.2 percent over the past month in the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes. The dollar has declined 4 percent.
The outlook on Japan’s AA- local-currency government debt rating, the fourth-highest grade, was lowered from “stable,” S&P said today, citing costs for rebuilding after the country’s record earthquake on March 11.
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