Dollar Falls Before Fed Considers Added Monetary Stimulus

[Charlie Echo]

The dollar weakened against most its major counterparts amid better-than-forecast factory data from China and bets the U.S. central bank will add to monetary stimulus.

The U.S. currency fell versus the euro and the yen before the Federal Reserve starts a policy meeting tomorrow amid forecasts it will expand bond-buying plans. Japan’s currency touched the highest in almost two weeks versus the euro after Italy’s Prime Minister Mario Monti said he intends to resign. Mexico’s peso advanced after a report showed exports increased 13 percent from a year earlier.

The euro fell 0.1 percent to $1.2913 as of 6:41 a.m. in London. Photographer: Kiyoshi Ota/Bloomberg

10:57

Dec. 10 (Bloomberg) -- Steven Saywell, global head of foreign-exchange strategy at BNP Paribas SA, and Nick Beecroft, chairman of Saxo Capital Markets U.K. Ltd., discuss the prospects for the euro, yen, Swiss franc and pound in 2013. They talk with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)

Mario Monti, Italy's prime minister. Photographer: Alessia Pierdomenico/Bloomberg

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“You’re starting to see a slight divergence appear in the currency markets, as the Chinese data remained quite favorable,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “Despite what is happening in Italy, markets are still relatively calm. People are looking ahead to the Federal Reserve this week, which should be an event that is positive for risk and negative for the dollar.”

The dollar fell 0.1 percent to $1.2941 per euro at 5 p.m. in New York. It dropped 0.2 percent to 82.36 yen. The Japanese currency was 0.1 percent higher against the euro at 106.58, after reaching 105.98, the strongest since Nov. 28.

The U.S. currency declined versus 10 of its 16 most-traded counterparts. It sank 0.3 percent versus the New Zealand dollar and retreated 0.2 percent against the pound.

Futures Positions

The yen’s gains against the dollar were buoyed as investors may have ended wagers the currency would decline. Net-short yen positions against the greenback reached 90,326 last week, the most since July 2007, Commodity Futures Trading Commission data show.

Japan’s currency has depreciated 9.5 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-nation currencies. The greenback dropped 2.3 and the euro lost 2.5 percent.

Mexico’s peso rose 0.3 percent to 12.8090 per dollar. The nation’s exports rose in October compared to that month a year before.

South Africa’s rand fell against most of its major counterparts before a report expected to show consumer prices in the nation rose 5.6 percent even as the economy slows.

The rand declined for the first time in six days, falling 0.2 percent to 8.6695 per dollar.

Dollar Measure

The Dollar Index (DXY) fell 0.1 percent to 80.301, after earlier declining as much as 0.2 percent.

The U.S. Federal Open Market Committee meets for the last time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.

“There’s a good chance that the Fed will announce a new round of money printing and bond buying,” which would be negative for the dollar, said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC)

China’s factory production climbed 10.1 percent in November while retail sales growth accelerated to 14.9 percent, the National Bureau of Statistics said Dec. 9. Both figures exceeded analysts’ median estimates compiled by Bloomberg.

The euro erased losses against the dollar earlier today as U.S. stocks pared declines after McDonald’s Corp., the largest restaurant chain, added 2.3 percent as its November sales rose 2.4 percent globally. Analysts projected a gain of 0.2 percent for sales at stores open at least 13 months, the average of 14 estimates compiled by Consensus Metrix.

Italy’s Leadership

Italy’s Monti will attempt to convince his coalition, which includes his predecessor Silvio Berlusconi’s People of Liberty Party, to vote to pass budget legislation before handing in his “irrevocable resignation,” national President Giorgio Napolitano’s office said Dec. 8.

“The political situation in Italy has added to uncertainty in Europe,” said Jane Foley, a senior currency strategist at Rabobank International in London. “This political uncertainty may linger for a while and that could be negative for the euro in coming months.”

The euro may strengthen to a seven-month high against the dollar should it stay above a level of so-called support, ING Groep NV said, citing trading patterns. The currency is poised to halt recent declines as long as it remains higher than its 50-day moving average, currently at $1.2918, and its 200-day average of $1.2785, according to Roelof-Jan van den Akker, a technical analyst at ING in Amsterdam. Should it hold above those the euro will rise toward $1.3172, the high of Sept. 17, he said.

Canada’s dollar strengthened after the government approved Cnooc Ltd. (883)’s $15.1 billion purchase of energy company Nexen Inc. (NXY) and signed off on Malaysian Petroliam Nasional Bhd.’s purchase of Progress Energy Resources Corp. (PRQ) on Dec. 7.

The Canadian currency appreciated 0.2 percent to 98.63 cents per U.S. dollar, the strongest since Oct. 19.