* Dollar falls to 7-month low versus yen
* Euro stays near 4-month high against dollar
* Dollar could extend falls if Fed opts for more stimulus
* SNB keeps Swiss franc cap at 1.20 per euro
By Gertrude Chavez-Dreyfuss
NEW YORK, Sept 13 (Reuters) – The U.S. dollar dropped to a
seven-month low against the yen on Thursday and held near a
four-month trough versus the euro on increased expectations the
Federal Reserve will announce a third round of monetary
stimulus.
Many in the market expect the Fed to launch a new asset
purchase program when it issues its policy decision later in the
day after the close of a two-day meeting. A new round of bond
purchases, known as quantitative easing (QE), is viewed as
negative for the dollar.
“The outperformance of the yen and the near-lack of a
corrective pullback in the euro suggest some form of policy
easing — possibly via further asset purchases — being
anticipated by the majority of market participants,” said
Vassili Serebriakov, currency strategist, at Wells Fargo in New
York.
In its prior two rounds of QE, the Fed bought about $2.3
trillion in bonds to lower long-term interest rates. While lower
rates may prod more U.S. business and residential investment, it
is seen as dollar-bearish since there is less incentive for
foreigners to buy what could be lower-yielding U.S. debt.
Fed Chairman Ben Bernanke, at the Fed’s annual conference in
Jackson Hole, Wyoming, late last month, had stressed the need to
bring down the country’s stubbornly high jobless rate and said
the U.S. central bank would act as needed to spur the recovery.
The dollar fell to 77.36 yen, its lowest level since
mid-February when the Bank of Japan unexpectedly eased monetary
policy. Further falls would put markets on alert for possible
intervention by Japanese monetary authorities to stem the rise
in the yen, traders said.
U.S. jobless claims data on Thursday was weaker than
expected as new claims hit a two-month high, reinforcing the
view on Fed easing, even though producer prices rose more than
expected.
Serebriakov, however, pointed out that given heightened
expectations about further monetary easing, there is some risk
of the Fed not delivering on that later on Thursday, which would
prompt a reversal of some of the U.S. dollar’s recent weakness.
The euro was little changed at $1.2909, not far from
a four-month high of $1.2936 reached on Wednesday.
The euro remained firm after Germany’s Constitutional Court
on Wednesday cleared ratification of the euro zone’s permanent
rescue fund, paving the way for the European Central Bank to buy
bonds of struggling countries in the region.
Traders cited chart resistance for the euro at the 233-day
moving average at $1.2938.
The euro has risen more than 7 percent from July’s two-year
low of $1.2042, buoyed after the ECB pledged to do whatever it
takes to preserve the currency.
The euro rose 0.3 percent against the Swiss franc to 1.2129
francs, having earlier dipped after the Swiss National
Bank said it would maintain its 1.20 franc floor in
euro/Swiss.
The move disappointed some investors who had speculated the
SNB might raise the floor, but analysts said the fact the euro
did not sell off heavily was a sign of growing confidence in the
ECB’s plan to tackle high borrowing costs in heavily indebted
member countries.
FED IN FOCUS
Mounting expectations the Fed might print more dollars,
thereby potentially cheapening the currency’s value, pushed the
dollar index down 0.1 percent to 79.639, keeping it near
a four-month low of 79.522 on Wednesday.
Many Fed watchers believe any new asset purchase program
would be open-ended, unlike the past two cycles of quantitative
easing. That would allow the central bank to review the size of
its purchases on a frequent basis and adjust the program as
economic circumstances warrant.
Also helping the euro was the result of elections in the
Netherlands, where pro-European parties crushed radical fringe
groupings, dispelling concerns that euro-skeptics could gain a
power base in one of the euro zone’s core states.
The euro slid against the yen, trading at 99.99
yen but not far from Wednesday’s high of 100.64 yen.
