Dollar drops as Fed seeks to buy bonds

The dollar fell the most in four weeks against the currencies of six major trading partners after the Federal Reserve said it will pump more money into the US financial system to spur inflation and employment.

The greenback slid versus 15 of its 16 major counterparts after the Fed said it will buy $600 billion of US Treasuries through June. It pared losses after data yesterday showed payrolls grew more than forecast. The Australian and Canadian currencies reached parity with the dollar as investor appetite for higher-yielding assets rose before leaders of the Group of 20 nations discuss currency policy in Seoul next week.

“The global market dynamic is still supporting dollar weakness,” said Sacha Tihanyi, a currency strategist at Bank of Nova Scotia in Toronto, Canada’s third-largest lender. “The Federal Reserve’s statement may be favorable for the US economy, but it’s unfavourable for the US dollar.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major US trading partners including the euro and yen, slid 0.9 per cent to 76.548, from 77.266 on October 29, in the biggest weekly loss since October 8. It touched 75.631 on November 4, the lowest level since December 8, 2009.

The policy-setting Federal Open Market Committee said on November 3 it will buy about $75bn a month in Treasuries through mid-2011 in a strategy called quantitative easing. The Bank of Japan left monetary policy unchanged this week, keeping its interest rates the lowest in the world, as the yen fell versus all 16 major currencies.

European Central Bank President Jean-Claude Trichet signaled on November 4 policy makers aim to pursue their strategy to end emergency stimulus, sending the euro to a nine-month high against the dollar and a one-month high versus the yen.

Fed Chairman Ben S Bernanke said yesterday an acceleration in US economic growth would support the value of the US dollar compared with other currencies. The Fed’s asset-purchase plan is targeted at bringing about a more rapid US recovery, he said in response to questions from college students in Jacksonville, Florida.

“The best fundamentals for the dollar will come when the economy is growing strongly,” Bernanke said. “A strong US economy is critical not just for Americans but for a global recovery,” he added.

The dollar fell the most in four weeks against the euro, depreciating 0.6 per cent to $1.4032, from $1.3947 on October 29. It touched $1.4282 on November 4, the weakest since January 20.

The greenback climbed 1.1 per cent to 81.26 yen, gaining for the first time in seven weeks, even as it touched a 15-year low versus the Japanese currency, 80.22 yen, on Nov 1. The yen weakened 1.7 per cent, its biggest weekly drop since mid- September, to 114.03 per euro, from 112.12 on October 29.