Dollar Falls on Speculation Fed May Signal Easing; Euro Gains
Nov. 2 (Bloomberg) -- The dollar fell from a three-week high against the euro on speculation the Federal Reserve will signal today it's moving toward a third round of asset purchases, or quantitative easing, to spur growth.
The U.S. currency declined for the first time in three days versus the yen as economists said a manufacturing report tomorrow will add to signs the nation's growth is slowing. It remained lower as a private report showed U.S. companies added fewer jobs last month than in September. The euro gained after Greece's Cabinet backed Prime Minister George Papandreou's plan to put a bailout package to a referendum.
"The markets are starting to price in some prospect of QE3," said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. "I think we're likely to be sorely disappointed, with the Fed unlikely to introduce anything new. The markets are distracted with the events going on in peripheral Europe and in euro land as a whole, which are overshadowing everything else."
The dollar weakened 0.6 percent to $1.3787 per euro at 8:35 a.m. in New York. The greenback climbed to $1.3609 versus the euro yesterday, the strongest since Oct. 12. The U.S. currency slid 0.4 percent to 78.067 yen. The euro rose 0.2 percent to 107.631 yen, after earlier rising as much as 0.3 percent.
Fed officials are probably engineering a further round of asset purchases, while they are unlikely to announce a decision at the end of their two-day meeting today, according to economists surveyed by Bloomberg. Sixty-nine percent say Chairman Ben S. Bernanke will embark on a third round of QE, with 36 percent predicting the move in the first quarter of next year, according to the poll taken from Oct. 26-31.
More Action
Fed Vice Chairman Janet Yellen and Chicago Fed President Charles Evans said in speeches last month that more action may be needed to reduce an unemployment rate stuck around 9 percent or higher for 30 months.
U.S. factory orders declined 0.2 percent in September after dropping by the same amount in August, economists said before tomorrow's government report.
Poor U.S. data "would contribute to risk aversion, which could be dollar supportive, but I think probably the more significant reaction would be the markets will see the data as a trigger for more QE," said Mitul Kotecha, head of global currency strategy in Hong Kong at Credit Agricole Corporate & Investment Bank. "The only safe haven will be the yen, and the dollar will end up coming under some pressure."
ADP Report
Companies in the U.S. added 110,000 workers to payrolls, according to data today from Roseland, New Jersey-based ADP Employer Services, compared with a revised 116,000 in September. The median forecast in a Bloomberg News survey called for an advance of 100,000 from an earlier estimate of 91,000.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the U.S. currency against those of six trading partners, dropped 0.5 percent to 76.907.
The euro advanced against 13 of its 16 major counterparts after a Greek official said the Cabinet gave Papandreou unanimous backing for his referendum plans. Government spokesman Elias Mosialos said the referendum will be held "as soon as possible," and the vote of confidence in Parliament is also scheduled to begin today.
"Initially there was some selling because there were some concerns of a division between the Cabinet and the Greek government," said Lee Wai Tuck, a currency strategist in Singapore at Forecast Pte. "But when they said they unanimously back the referendum, there was some buying back of the euro."
Cannes Meeting
Papandreou will travel to Cannes, France, today to brief German Chancellor Angela Merkel, French President Nicolas Sarkozy and other officials on developments in Greece. Group of 20 leaders will also meet in the French resort tomorrow to discuss the debt crisis.
The yen strengthened against the dollar, after sliding 3.4 percent over the past two days. Japan's government intervened on Oct. 31, selling yen to weaken the currency after it appreciated to a post-World War II high of 75.35 per dollar on Oct. 31.
The yen tends to strengthen in periods of financial turmoil because the nation's current-account surplus make its less reliant on foreign capital.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net Keith Jenkins in London at kjenkins3@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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