The dollar fell toward a two-month low against the euro before Federal Reserve policy makers begin a two-day meeting amid speculation accelerating U.S. growth won’t be enough to prompt a tightening of monetary policy.
The greenback weakened versus 12 of its 16 major peers before data this week forecast to show home prices dropped by the most since December 2009 while the U.S. economic expansion quickened. Australia’s currency slid after a government report showed consumer prices rose at the slowest pace in almost two years. The yen was near a two-month low against the euro as Asian stocks advanced amid signs the global recovery is building momentum, boosting demand for higher-yielding assets.
“The Fed still has concerns about high unemployment, very subdued core inflation and a generally fragile outlook,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “A reiteration of that may provide some headwinds for the U.S. dollar and U.S. bond yields.”
The dollar declined to $1.3661 versus the euro at 12:47 p.m. in Tokyo from $1.3638 in New York yesterday, when it touched $1.3686, the weakest level since Nov. 22. It traded at 82.45 yen from 82.53 yen. The U.S. currency fell to 0.9479 Swiss francs from 0.9491 after earlier reaching 0.9471, the least since Jan. 5. The euro was at 112.63 yen from 112.54 yesterday, when it rose to 112.91, the most since Nov. 23.
Fed Chairman Ben S. Bernanke will keep the benchmark interest rate unchanged at zero to 0.25 percent at the central bank’s meeting on Jan. 25-26, according to economists in a Bloomberg News survey. Unemployment, at 9.4 percent in December, is well above the 5 percent to 6 percent level that most Federal Open Market Committee members peg as their long-term aim.
Housing in the U.S. also continues to struggle as foreclosures mount. Home prices in 20 cities for the 12 months through November fell 1.6 percent from a year earlier, the biggest decline since December 2009, according to a Bloomberg News survey before the S&P/Case-Shiller index is released today.
U.S. gross domestic product rose at a 3.5 percent annual pace in the fourth quarter, up from a 2.6 percent rate in the previous three months, according to the median estimate of economists surveyed by Bloomberg News before a Jan. 28 report.
“As the market remains wary that the U.S. dollar can transition to a growth currency, the fourth quarter GDP print will have to come in on or above expectations to support the U.S. dollar,” Amelia Bourdeau, a currency strategist in Stamford, Connecticut, at UBS AG wrote in a note to clients.
The euro rose against a majority of its most-traded peers before a European Financial Stability Facility bond auction that may garner increased demand.
The Luxembourg-based EFSF is selling as much as 5 billion euros ($6.8 billion) of five-year notes backed by guarantees from euro members, funds that will help pay for Ireland’s bailout. A successful sale of EFSF debt may prompt renewed calls for common European securities. While backed by most of the same nations that would be involved in a euro bond, the EFSF’s securities have achieved AAA ratings through credit enhancements designed to boost their appeal and keep down yields.
“We expect demand to be strong, as there is a shortage of AAA paper in Europe,” Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York wrote in a note to clients. The euro’s advance yesterday “will embolden the short-term speculators and suggest scope for another two cent advance,” he wrote.
The MSCI Asia Pacific Index climbed 1 percent before reports today that may show French spending rose a second month and Spanish producer-price inflation accelerated. A composite index based on a survey of euro-area purchasing managers in the manufacturing and services industries rose to 56.3 in January, the highest in six months, from 55.5 in December, Markit Economics said yesterday in an initial estimate.
‘Better’ European Data
“The data certainly looks to be doing much better not only in the U.S., but also in Europe,” said Khoon Goh, head of market economics and strategy at ANZ National Bank Ltd. in Wellington. “At the moment, risk appetite is ‘on’ and the yen typically doesn’t perform too well. If you look at the price action over the past week, the market is preferring the euro versus the greenback.”
Consumer spending in France gained 0.3 percent in December from November, when it rose 2.8 percent, a Bloomberg News survey of economists showed before the national statistics office Insee report. Prices of goods leaving Spain’s factories, mines and refineries climbed 5.0 percent in December from a year earlier, compared with 4.4 percent in November, a separate survey showed before the National Statistics Institute report.
The Australian dollar declined for the first time in three days after government figures showed consumer prices rose 0.4 percent in the fourth quarter, compared to the median estimate for a 0.7 percent gain. The so-called Aussie fell 0.3 percent to 99.49 U.S. cents and 82.03 yen.