Dollar weakens on Fed bond-purchase speculation

The dollar fell against the majority of its most-traded peers amid bets Federal Reserve Chairman Ben S. Bernanke will signal the central bank plans to maintain bond purchases that risk debasing the currency.

Europe’s 17-nation currency traded at almost its highest level against the dollar since February and the yen rallied before the U.S. central bank also releases revised economic forecasts. Sweden’s krona rose to a two-month high versus the dollar after the jobless rate unexpectedly fell in May and a government research institute said the central bank won’t cut its main lending rate further.

“Markets are looking for a constructive outcome in terms of the Fed really explaining and clarifying,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “Markets are still reluctant to put on risk. I don’t think the market expects Bernanke to completely backtrack on the previous hint of tapering.”

The dollar fell 0.4% to 94.99 yen at 9:43 a.m. in New York after weakening 1.1% in the previous two days. Japan’s currency rose 0.4% to 127.22 per euro. The euro was little changed at $1.3393 after appreciating to $1.3416 yesterday, the highest since Feb. 13.

Rand Rallies

South African inflation slowed for the first time in five months, while the current account deficit unexpectedly shrank, improving the outlook for Africa’s largest economy. The rand erased declines and rallied 0.6% after the release of the inflation and current-account data to 9.9366 per dollar.

The ruble slid for a third day on weaker-than-forecast economic data as Russia canceled its second bond sale this month and the central bank chairman warned capital outflow remains “abnormally high.” Russia’s currency weakened 0.6% to 32.1895 versus the greenback.

Trading in over-the-counter foreign-exchange options totaled $9.2 billion, compared with $24.1 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate was $3.3 billion, the largest share of trades at 36%. Dollar-yuan options were the second most actively traded, at $2.2 billion, or 24%.

Dollar-yen options trading was 31% less than the average for the past five Wednesdays at a similar time in the day. U.S. dollar-yuan options trading was 5% less than average.

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