Dollar falls as Obama win paves way for monetary easing

Challenger Mitt Romney disagreed with current Fed policy

U.S. currency, tug of war U.S. currency, tug of war

The dollar dropped the most in a week against the euro on speculation Barack Obama’s re-election as president will boost chances the U.S. will maintain monetary stimulus policies that tend to weaken the greenback.

The U.S. currency fell versus all except two of its 16 major peers as Obama defeated Republican challenger Mitt Romney, who disagrees with current Federal Reserve policy. Obama now faces the so-called fiscal cliff, $600 billion in tax increases and spending cuts due to be implemented in 2013. Australia’s dollar rose for a third day as stocks rallied, boosting demand for higher-yielding assets. The euro gained against the dollar as the Greek parliament prepared to vote on austerity measures.

“The size of the victory was perhaps at the upper end of what people were expecting, so that may mean that his negotiations with the Republicans to stop us going over the fiscal cliff might be a bit easier,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “The idea of unchanged Fed policy is slightly supportive for equities, slightly weaker dollar, and I think that’s how people are playing it today.”

The dollar declined 0.3 percent to $1.2848 per euro at 10:25 a.m. London time after falling 0.1 percent yesterday. The U.S. currency was little changed at 80.37 yen after dropping to 79.81 yen, the weakest level since Nov. 1. The euro rose 0.3 percent to 103.25 yen.

Obama prevailed over Romney narrowly in the popular vote, yet achieved an electoral sweep by carrying the crucial states of Colorado, Ohio and Virginia. With Florida too close to call, Obama had captured 303 Electoral College votes, well beyond the 270 needed to win the White House, compared with 206 for Romney.

‘Dollar Selling’

“Monetary policy will remain loose under Obama so the dollar will be sold,” said Michiyoshi Kato, senior vice president of foreign-currency sales at Mizuho Corporate Bank Ltd. in Tokyo. “Dollar selling may not last that long as the U.S. faces the fiscal cliff.”

Romney had said he disagreed with the Fed’s measures to stimulate the economy and would replace Chairman Ben S. Bernanke at the end of the latter’s term in January 2014. The central bank unveiled a plan in September to buy $40 billion of mortgage-backed securities every month in a third round of so- called quantitative easing after $2.3 trillion purchases of bonds from December 2008 and June 2011.

“Obama’s re-election is likely to boost expectations of continued easing by the Fed,” said Junya Tanase, chief currency strategist at JPMorgan Chase & Co. in Tokyo. “If it leads to lower U.S. yields and higher stock prices, the bias will be for the dollar-yen to fall.”

Extra Yield

The extra yield investors demand to hold two-year U.S. Treasuries instead of similar-maturity Japanese government bonds shrank to 17 basis points, the least since Oct. 16, curbing the allure of the dollar over the yen.

The Australian dollar rose to a six-week high against the U.S. currency as the MSCI Asia Pacific Index of shares gained 0.7 percent and the Stoxx Europe 600 Index advanced 0.6 percent.

“The Aussie has popped in a very short-term market reaction,” said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong. With Obama poised to begin another four-year term, “the consistent approach that will be executed by the current administration is positive. The one thing we don’t need these days is uncertainty.”

The Australian currency gained 0.2 percent to $1.0453 after rising to $1.0480, the strongest since Sept. 21.

Euro Gains

The euro advanced for a second day versus the dollar as Greek lawmakers prepared to vote on austerity measures needed to keep its bailout on track.

The 238 pages of additional austerity plans, ranging from raising the retirement age to eliminating holiday payments for pensioners, will be debated by the Greek parliament today with a roll-call vote expected after 8 p.m. today. Approval is the first of the parliamentary votes required by Nov. 12 to unlock a 31 billion-euro portion of international aid.

“There is an expectation that will pass, and that again just takes yet another tail risk away from the euro,” Royal Bank of Scotland’s Robson said.

The euro declined 1.2 percent over the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The dollar rose 0.5 percent and the yen fell 1.9 percent.

Bloomberg News

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