Dollar Falls on Bets Fed Will Quell QE Speculation

LONDON (July 16) The dollar weakened versus the yen amid speculation Federal Reserve Chairman Ben S. Bernanke will seek to damp investor expectations of a reduction in stimulus when he speaks before Congress tomorrow.

India’s rupee rose to a two-week high after its central bank raised two interest rates. Australia’s dollar climbed at least 0.4 percent against all 16 of its major peers as investors pared bets the Reserve Bank will cut borrowing costs after the minutes of its last meeting released today. The euro snapped a two-day drop against the dollar even after a report showed German investor confidence unexpectedly fell this month. Bernanke said on July 10 the U.S. economy still needs stimulus.

“Bernanke was dovish last week and so the chances are that he repeats some of that rhetoric about accommodation,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The market is positioning itself for a dovish Bernanke tomorrow so the dollar therefore is on the defensive. The euro is seeing some benefit from that.”

The dollar declined 0.6 percent to 99.31 yen at 6:53 a.m. New York time. The U.S. currency slid 0.4 percent to $1.3116 per euro. The 17-member euro was little changed at 130.32 yen.

JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, was near a one-month low. The gauge was little changed at 10.55 percent after dropping to 10.47 percent on July 9, the lowest since June 18.

Fed Report

Bernanke is scheduled to deliver his semi-annual monetary policy report to Congress this week, starting tomorrow at the House Financial Services Committee. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs.

While Bernanke last week damped speculation the central would slow its buying, minutes released the same day of the Fed’s last policy meeting showed “about half” of participants indicated “it likely would be appropriate” to end the purchases late this year.

U.S consumer prices increased 1.6 percent from a year earlier in June, after a 1.4 percent gain in May, according to the median estimate of economists surveyed by Bloomberg News before the Labor Department releases its figures today. That is below the Fed’s 2 percent goal.

The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, dropped 0.3 percent to 1,033.80.