Dollar falls to 1-month low on Fed speculation

The dollar fell to a one-month low as the exit of former Treasury Secretary Lawrence Summers from the race to lead the Federal Reserve damped bets for an early end to expansionary monetary policy.

The U.S. currency weakened as Summers’s decision fueled speculation the Fed will be more cautious to remove monetary stimulus, which tends to weaken a nation’s foreign exchange. The Federal Open Market Committee will consider whether to slow its $85 billion of month bond-buying at a policy meeting tomorrow and the next day. Australia’s dollar rose to a three-month high and the South African rand climbed to the strongest in five weeks. The Turkish lira jumped the most since May 2010 as the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons, boosting demand for higher-yielding assets.

“I would attribute a lot of dollar selling towards Summers’s withdrawal,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview. “As for the FOMC meeting, any tapering of over $10 billion will be considered fairly aggressive.”

The Bloomberg U.S. Dollar Index, which tracks the performance of a basket of 10 leading global currencies against the dollar, fell 0.3% to 1,020.97 as of 5 p.m. in New York. It touched the lowest level since Aug. 12.

Market Prices

The dollar fell 0.3% to $1.3334 per euro after dropping to $1.3386, the weakest level since Aug. 28. The U.S. currency declined 0.3% to 99.08 yen after depreciating to 98.46 yen, the least since Sept. 2. The euro was little changed at 132.11 yen.

The Australian, New Zealand and Canadian dollars all rallied as investors sought higher-yielding assets.

The Aussie climbed 0.8% to 93.18 U.S. cents after rising to the strongest level since June 19. The kiwi rallied 0.5% to 81.70 cents, and Canada’s currency gained 0.3% to C$1.0324 per U.S. dollar.

The Australian currency may extend its advance to as high as 95.10 U.S. cents, the Fibonacci 38.2% retracement of the currency’s gain in June, as the risk of additional weakness for the greenback has increased, Niall O’Connor, a New York- based technical analyst at JPMorgan Chase & Co., wrote in a note to clients. “The backdrop for commodity currencies continues to improve against the dollar,” he wrote.

The rand rose 1.2% to 9.8102 per dollar after appreciating to the strongest level since Aug. 9.

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