Thursday, October 7, 2010

Dollar falls to 15-year low against yen

The dollar continued to lose ground on Wednesday, hitting a 15-year low against the yen, as the prospect of more quantitative easing from the Federal Reserve kept the U.S. currency under pressure.

Central banks across Asia were suspected of intervening to stem gains in their own currencies, with authorities in South Korea, Thailand, Taiwan, Malaysia and the Philippines all active in the market.

But dealers said the Bank of Japan did not intervene to weaken the yen, even as the currency rose to a 15-year high of Y82.76 against the dollar, an event which last month sparked Tokyo's first foray into currency markets since 2004.

While traders noted that several Japanese government-backed institutions were active in the market buying dollars against the yen around Y83, analysts said the BoJ was likely to hold back from intervening before this weekend's meeting of finance ministers and central bank chiefs from the Group of 20 leading nations.

They reasoned that Tokyo would not risk further action that could attract criticism at the meeting, given the heightened tensions over exchange-rate policy, which have triggered much talk of currency wars.

Elsa Lignos, at RBC Capital Markets, said Japan would be hard pushed to justify intervention on the grounds of smoothing volatility in the currency markets. "This has not been a sudden jump in the yen, but a steady grind higher," she said. By late in the day in New York, the dollar was 0.4 per cent weaker at Y82.92 against the yen.

Meanwhile, the prospect of further QE from the Fed kept the greenback under pressure elsewhere. The dollar index, which tracks the U.S. currency's progress against a basket of six leading currencies, fell 0.5 per cent to 77.38 -- its weakest level since late January.

The euro was the biggest winner among leading currencies, rising 0.7 per cent to an eight-month high of $1.3937 against the dollar.

Analysts said the performance of the euro, which has risen more than 9 percent since the start of September, reflected the fact that the European Central Bank was the only large central bank not putting pressure on its currency by announcing or considering QE.

"On the back of the European Central Bank not complaining or participating in the race for the weakest currency, the euro has continued its majestic rise," said Ankita Dudani at Royal Bank of Scotland.
The dollar also lost ground elsewhere, falling 0.5 per cent to a record low of SFr0.9610 against the Swiss franc and losing 0.6 per cent to a 26-month low of $0.9771 against the Australian dollar. The greenback was flat against the British pound at $1.5889.

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