Dollar Drops Versus Peers Before Confidence Data, Fed

by on January 29, 2013 5:26 am BST

The dollar weakened against most of its 16 major counterparts as investors pared bets the Federal Reserve will signal a change to its asset-buying program at the end of a two-day meeting tomorrow.

The U.S. currency was 0.2 percent from its lowest in 11 months versus the euro before a report today forecast to show confidence among U.S. consumers declined this month. The yen declined versus its most-traded peers as Asian stocks rose, damping demand for currencies of nations with low yields. New Zealand’s dollar rose, snapping a three-day drop as figures showed the nation’s annual trade deficit unexpectedly narrowed.

“We’re going to get a pretty clear reiteration from the Fed that quantitative easing will continue for quite some time,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “The strong dollar story is a tough case to make right now.”

The dollar was little changed at $1.3458 per euro as of 1:39 p.m. in Tokyo from $1.3456 in New York. It reached $1.3479 per euro on Jan. 25, the weakest level since Feb. 29, 2012. The dollar rose 0.1 percent to 90.90 yen. Japan’s currency fell 0.1 percent to 122.35 per euro.

A record of the U.S. central bank’s Dec. 11-12 meetings released on Jan. 3 showed officials began debating an end to its unprecedented bond-buying as early as this year.

‘Evenly Divided’

The Federal Open Market Committee’s minutes showed participants were “approximately evenly divided” between those who said it would be appropriate to end the purchases around mid-2013 and those who said they should continue beyond that date.

“We believe that the takeaway from this week will be that hopes for an early end to QE3 are unfounded, which should bring about broader dollar-selling pressure,” Vassili Serebriakov, a currency strategist at BNP Paribas SA in New York, wrote in a note to clients.

The Conference Board’s index of U.S. consumer sentiment fell to 64 from a 65.1 reading in December, according to the median forecast of economists surveyed by Bloomberg News before data due today.

The Japanese currency fell 6 percent over the past month in the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2.2 percent and the dollar increased 0.2 percent.

In Germany, a report by GfK SE (GFK) due today may indicate a rebound in confidence about the euro area’s biggest economy. The market research company’s consumer-sentiment index will probably climb to 5.7 in February, economists polled by Bloomberg said, after it dropped to 5.6 this month, the least since December 2011.

“Euro strength is very much an ongoing story,” Westpac’s Callow said. “The growth differential story will be supportive for the euro against the dollar in the next few weeks and months.”

The MSCI Asia Pacific Index of stocks rose 0.7 percent, the most since Jan. 18.