Dollar falls to seven-month low versus yen before Fed decision

QE3 Anticipation

The central bank is also predicted to extend the duration of its zero-interest-rate policy into 2015. Two previous series of bond purchases totaling $2.3 trillion have failed to revive the labor market, which Fed Chairman Ben S. Bernanke said last month is a “grave concern.”

“Anticipation of QE3 is very high,” said Yuji Kameoka, chief currency strategist at Daiwa Securities Co. in Tokyo. “The dollar may extend declines for some time, given that QE3 isn’t priced-in completely.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, declined 0.1 percent to 79.632. It yesterday touched 79.522, the lowest since May 4.

Since December 2008, when the Fed began its asset-purchase programs, the index has dropped more than 8 percent.

The dollar has depreciated 1.6 percent in the past week, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen was gained 0.2 percent and the euro advanced 0.7 percent.

Yen Surge

Japan’s Vice Finance Minister Takehiko Nakao told reporters in Tokyo today the recent surge in the yen against the dollar has been “obviously speculative” and that Japan can’t overlook such moves.

Further appreciation in the yen may see Japan intervene in the currency market, according to Steven Barrow, head of Group of 10 research at Standard Bank Plc in London.

Japanese Finance Minister Jun Azumi ordered currency intervention on Oct. 31, after the yen strengthened to a post- war record 75.35 per dollar.

“If the Fed were to act particularly aggressively today and we were to see dollar-yen fall quite significantly, then I think we probably would see some intervention,” Barrow said on Bloomberg TV’s “The Pulse” with Guy Johnson. “We’re 77.5 now, so you could say that we’ve maybe still got a little bit of a way to go, but I don’t think we’re that far away,” he said.

Euro Challenges

The euro strengthened against most of its major peers today even as Greece’s Prime Minister Antonis Samaras received the second refusal in four days from coalition partners over plans to reduce spending that are key to receiving international aid. It rose yesterday after a German court said the country can ratify the European Stability Mechanism, a 500 billion-euro rescue fund.

Samaras faces renewed opposition from Democratic Left leader Fotis Kouvelis and Pasok leader Evangelos Venizelos after a meeting yesterday over plans to reduce wages and pensions that have already been criticized by inspectors from the euro area, the European Central Bank and the International Monetary Fund as not going far enough.

Swedish consumer prices rose an annual 0.7 percent, the same as in July, Statistics Sweden said today. Inflation was estimated at 0.9 percent in a Bloomberg survey of 11 economists. The krona dropped 0.5 percent to 6.6025 per dollar.

Bloomberg News

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