US dollar falls broadly as Fed spurs risk-seeking

By Wanfeng Zhou

NEW YORK (BestGrowthStock) – The U.S. dollar fell to a 28-year low against the Australian currency on Thursday and over a nine-month trough versus the euro after Federal Reserve plans to buy more Treasuries pushed U.S. yields lower and prompted investors to seek returns elsewhere.

The Fed’s commitment on Wednesday to open-ended purchases of Treasuries, implying low funding costs, brings into focus an expected increased use of the dollar in carry trades. In such trades, the greenback is used to fund purchases in commodities, emerging markets and higher-yielding currencies.

“As soon as the Fed starts pushing that button and printing money, that money immediately leaves the U.S. because there are a lot of more compelling investments overseas than there are in the U.S. right now,” said Ihab Salib, senior portfolio manager and head of international fixed-income at Federated Investors in Pittsburgh.

“My expectation is for a steady trend of a weaker dollar,” Salib said, adding he expects the dollar to decline more against currencies of emerging markets and peripheral countries such as Australia, Canada and Norway than the yen or euro.

Federated Investors manages $341 billion in assets.

The euro was last up 0.5 percent at $1.4209, having touched a 9-1/2-month high at $1.4283 on trading platform EBS and taking out option barriers at $1.4250. Traders reported more barriers at $1.43 and bids around $1.4200-$1.4220.

Technical strategists also flagged the $1.4370 area, the 78.4 retracement of the euro’s fall from November to June. The next target is around $1.4580, the euro’s January high.

Investors awaited a key U.S. jobs report and the outcome of a policy meeting by the Bank of Japan, both due out on Friday.

EURO MAY HIT $1.50

In contrast to the Fed, the Bank of England on Thursday said it made no changes to its asset purchasing plan. Analysts had expected the BoE to follow the Fed. The European Central Bank, meanwhile, kept interest rates unchanged at 1 percent.

Some market participants are forecasting the euro will hit $1.50 in short order. Others are skeptical given renewed worries about the euro zone’s sovereign debt woes.

Salib said he would not be surprised to see the euro at $1.45 to $1.50 by the end of year. But he added: “I don’t see it going much beyond that just because what’s happening domestically within Europe.”

Christian Broda, managing director at the $12 billion hedge fund Duquesne Capital Management noted “$1.50 is not what it used to be in 2006-2007” in real exchange rate terms. He said a euro at $1.50 would be the equivalent of $1.35 in 2007 terms.

“The euro is in a secular trend which is an appreciation … Asia is a positive force for the euro’s appreciation. It is in a stage of development that needs a lot of capital goods,” Broda said, adding Germany — the biggest euro zone member — is a beneficiary of Asia’s need for capital goods.

WEAK DOLLAR POLICY?

ECB President Jean-Claude Trichet said Fed policy actions do not suggest the United States was actively seeking a weaker dollar.

But policymakers in Latin America and Asia criticized the U.S. central bank move, saying it made any substantive deal on cutting global economic imbalances less likely at next week’s Group of 20 meeting in Seoul.

“In reality, everything that the Fed is doing — even though the U.S. has a strong dollar policy — is really more of a weak dollar policy. How they defend themselves within the G20 is going to be interesting,” Salib said.

The dollar index (Read more about the global trade. ) (.DXY: ), a gauge of its performance against a basket of six currencies, fell to an 11-month low at 75.631, taking out trendline support from its March 2008 lows.

The Australian dollar, whose central bank raised rates this week, hit a post-float high at US$1.0177, and was last at US$1.0170, up 1.2 percent. The New Zealand dollar soared 2.2 percent to US$0.7956.

The U.S. dollar fell 0.4 percent to 80.73 yen, close to its 1995 record low of 79.75. Traders remained on alert for yen-selling intervention by Japanese authorities.

US dollar falls broadly as Fed spurs risk-seeking