BOE chief's remarks add to pressure on British pound
LONDON (MarketWatch) -- The U.S. dollar was lower versus most rivals Thursday, maintaining a weak tone a day after the Federal Reserve upgraded its assessment for the economy but indicated that interest rates were unlikely to rise any time soon.
Strategists at Brown Brothers Harriman said the dollar saw added pressure versus the Japanese yen in Asian trading on talk of potential yen repatriation following the Japanese holiday.
The dollar fell to 90.70 yen versus the Japanese unit, down from 91.13 yen in North American trade late Wednesday.
The dollar index (DXY 76.21, +0.16, +0.21%) , which measures the U.S. unit against a basket of six major currencies, recently stood at 76.251, down from 76.377 in late New York trade Wednesday.
The euro rose to $1.4770, up from $1.4734.
The euro posted little reaction to a continued but weaker-than-expected rise in the Ifo Institute's German business climate index. The index rose to 91.3 in September from 90.5 in August, coming in below forecasts for a stronger jump to 92.0. See full story.
Economists said the data still pointed to third quarter growth for the German economy.
The British pound, meanwhile, tumbled on a combination of news reports focused on the currency's ongoing weakness. Sterling traded at $1.6196 versus the dollar, down from $1.6343 late Wednesday. The euro jumped 1.3% to 91.15 pence.
Remarks by Bank of England Governor Mervyn King to a regional newspaper published Thursday underscored the central bank's lack of concern about weakness in the pound, strategists said.
King, in an interview with the Newcastle Journal, said the pound's tumble had aided a rebalancing of the U.K. economy.
The pound had regained some ground Wednesday after minutes of the BOE's September policy meeting showed policy makers were content for now with the size of the bank's quantitative easing program.
"But the bounce only lasted 24 hours as Mr. King once again demonstrated to the market that the BOE is perfectly content with a lower currency exchange rate and is unlikely to initiate any type of tightening into its monetary policy for the foreseeable future," said Boris Schlossberg, head of currency research at GFT.
Also, the Daily Telegraph reported that the Bank of England was set to meet with London-based economists in what the newspaper termed a "crisis" meeting designed to stem alarm and confusion over the quantitative-easing program and the weakness of the pound.
Some analysts downplayed the significance of the meeting, but noted that overall sentiment toward the pound remains bearish.
"Indeed, although there is nothing unusual in the BOE calling a meeting with economists to clarify policy, as looks to be the case, the sterling-negative sentiment continues to build, especially as the BOE appears unconcerned by the currency weakness at this stage," wrote strategists at BNP Paribas.
In a statement after its widely expected decision on rates Wednesday, the Fed said that economic activity has "picked up" and noted improved conditions in financial markets.
It also extended through March the timeframe for its $1.25-trillion program to buy mortgage-backed securities and its $200 billion program to buy agency debt. The programs, aimed at keeping rates low to support the U.S. housing market, were originally set to expire in December.
The dollar will likely remain under pressure ahead of the two-day meeting of Group of 20 leaders in Pittsburgh on Thursday.
At the G20 meeting, the U.S. is widely expected to make a call for the global economy to be rebalanced via increased spending from countries, such as China, that sport a trade surplus.
"Some agreement in executive pay, a general dressing down of protectionist measures and a sense that it is too early to withdraw stimulus measures are likely to emerge from the meeting," said Jane Foley, research director at Forex.com. " It is unlikely that any strong mention of FX markets will be made, though some reference to the preference for stable exchange rates may be seen."
