Dollar Falls as Bernanke Says He’s Prepared to Add More Stimulus
Thursday, 26 April 2012 | 00:39
The dollar fell against most of its major peers after comments by Federal Reserve Chairman Ben S. Bernanke that he’s prepared to “do more” to boost the economy raised concern more monetary stimulus will debase the greenback.
Bernanke’s comments at a press conference after the central bank left borrowing rates unchanged while saying economic growth will accelerate pared the dollar’s gain versus the yen. South Africa’s rand and the Australian and Canadian dollars climbed as stocks rallied.
“Bernanke is definitely providing additional color to the Federal Reserve’s forecast,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York. “The Fed chairman is perceived by the market as someone who is willing to be patient and cautious in terms of making any policy moves.”
The dollar fell 0.2 percent to $1.3217 per euro at 5 p.m. in New York. It touched $1.3237 earlier, the highest level since April 4. The greenback was little changed at 81.34 yen after rising earlier as much as 0.5 percent. Japan’s currency fell 0.2 percent versus the euro to 107.52.
The rand climbed 0.6 percent to 7.7493 per dollar, and the Aussie, as Australia’s currency is nicknamed, added 0.4 percent to $1.0353. Canada’s dollar strengthened 0.4 percent to 98.34 cents to the greenback.
Riskier assets traditionally benefit from stimulus programs as investors search for higher returns, shunning the low yields of nations such as the U.S. and Japan.
The Standard & Poor’s 500 Index rallied 1.4 percent.
‘More as Needed’
“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said at a press conference following a two- day meeting of the Federal Open Market Committee in Washington.
Fed policy makers upgraded their forecasts for growth and unemployment this year while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.
They now see the jobless rate averaging between 7.8 percent and 8 percent in the fourth quarter, compared with estimates in January of 8.2 percent to 8.5 percent. The economy is forecast to grow 2.4 percent to 2.9 percent, versus 2.2 percent to 2.7 percent.
“There’s a very muted market reaction,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “Right now, the U.S. economy appears to be moderating, and we’re stuck in this zone of inaction where the Fed is in a wait-and-see mode.”
Policy makers led by Bernanke are holding off on additional steps to boost the economy amid signs the more than two-year expansion is gaining strength. Still, the jobless rate isn’t declining fast enough to satisfy central bankers, who repeated their view today that borrowing costs are likely to remain “exceptionally low” at least through late 2014.
The central bank bought $2.3 trillion of assets in two rounds of stimulus known as quantitative easing between December 2008 and June 2011. The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, lost 14 percent during that period.
The Fed has also kept its benchmark interest rate at zero to 0.25 percent since December 2008.
The greenback dropped earlier versus most major peers as Commerce Department data showed U.S. durable goods orders slid 4.2 percent in March, the biggest decrease since January 2009, after a revised 1.9 percent gain the prior month. Economists forecast a 1.7 percent decrease, according to the median estimate in a Bloomberg News survey.
The dollar has weakened 2.6 percent this year, the second- worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen has tumbled 8.5 percent.
The pound fell today from a seven-month high versus the dollar after a government report showed the U.K. slipped back into recession, backing the case for the Bank of England to extend its asset-purchase program.
The British currency dropped as much as 0.4 percent to $1.6082 was little changed at 81.78 pence per euro after gaining to 81.44 pence yesterday, the strongest since August 2010.
Hungary’s forint was the best-performing currency after a government official said the country can start financial-aid talks with the International Monetary Fund and the European Union as soon as it passes legislation required by the EU.
The currency rose 2.2 percent to 217.53 per dollar and added 2.1 percent to 287.56 per euro.
Won’t Ratify Pact
The euro weakened earlier versus the dollar after Francois Hollande, the leading candidate to become France’s next president, said the country won’t ratify the euro fiscal pact in its current form if he is elected. He spoke at a press conference in Paris.
Hollande, a Socialist, has also criticized austerity measures imposed throughout the euro region, saying he’ll refocus the economy on growth if he wins. The euro zone’s economy is forecast to contract 0.4 percent this year.
“Some of the Hollande comments have really had an impact,” said Mary Nicola, a currency strategist at BNP Paribas SA in New York. “The candidates have a week to go and elections are tight. It’s still a nervous point for investors.”
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