Dollar gains as shares drop before US inflation data

The dollar and yen gained against most major counterparts on prospects a report on Thursday will show that US inflation isn’t weak enough for the Federal Reserve to consider a third round of so-called quantitative easing.The yen rose against the Australian and New Zealand dollars as Asian equities fell, damping demand for higher-yielding assets. The Fed wrapped up its second round of bond buying, known as QE2, in June. The franc fell against the euro and dollar on speculation the Swiss National Bank will expand efforts to curb the currency’s strength. The pound depreciated versus the dollar before spending data that may add to evidence the UK economy is losing momentum.“If inflation comes in around consensus, it’s really hard to make the case for QE3 near term,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “It makes it harder for the Fed to ease monetary policy further and so is supportive for the US dollar.”The dollar rose to $1.4398 per euro as of 7:05 am in London from $1.4426 in New York on Wednesday. It was at 76.66 yen from 76.60, near the post-World War II record low of 76.25 yen reached on March 17. The 17-nation euro traded at 110.34 yen from 110.50 on Wednesday.The Australian dollar fell 0.5 percent to $1.0496 and declined to 80.47 yen from 80.82 on Wednesday. New Zealand’s currency weakened to 83.29 U.S. cents from 83.74, and lost 0.5 percent to 63.85 yen. US consumer prices, excluding volatile food and fuel costs, climbed 0.2 percent in July, according to a Bloomberg News survey of economists. The gauge added 0.3 in each of the previous two months, the biggest back-to-back gain in three years.With the economic recovery showing signs of stress, the Fed on August 9 pledged to keep its benchmark interest rate at a record low at least through mid-2013. Charles Plosser and Richard Fisher, two Fed officials who dissented from the central bank’s latest policy statement, on Wednesday spoke out against unnecessary stimulus. Fisher also said monetary easing shouldn’t be used to boost stocks.The CPI data may dampen expectations for “fresh liquidity injections to boost equity markets, so it’s potentially a negative for equities,” said Callow. US Labour Department data that will show the number of applications for unemployment insurance payments in the US climbed 5,000 in the week ended Aug. 13 to 400,000, according to economists in a Bloomberg survey.The MSCI Asia Pacific Index of stocks dropped 1.4 percent.The yen has risen beyond the level that prompted Japan to unilaterally sell the currency on August 4, its first intervention in currency markets since March. Japan’s Finance Minister Yoshihiko Noda warned on August 14 he’s ready to take “bold action” to stem a yen advance that risks slowing the nation’s recovery. Takehiko Nakao, a senior currency official at the Finance Ministry, said he discussed foreign-exchange issues on Thursday with Bank of Japan Executive Director Hiroshi Nakaso. Nakao declined to comment on whether they discussed intervention in the currency market. “Upward pressure for the yen still remains,” said Tsunemasa Tsukada, chief manager for currencies and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp, a unit of Japan’s largest financial group by market value. “The yen may strengthen further should the market consensus come to say there will likely be a recession in the US and European economies.”The franc fell against the euro amid concern Switzerland’s central bank will expand efforts to weaken its currency to protect exporters. The SNB said on Wednesday it will boost liquidity to the money market. Swiss Finance Minister Eveline Widmer-Schlumpf said any decision on a target for the currency is up to the central bank.“The SNB played its cards pretty close to its chest on Wednesday and hasn’t ruled out intervention,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “The market will still be on intervention alert, especially with the Japanese on Thursday talking about the strong yen.”The franc fell to 1.1461 per euro from 1.1398 on Wednesday, when it gained 0.6 percent. It slid 0.8 percent to 79.62 centimes per dollar.The franc and the yen tend to strengthen during periods of financial stress because their export-reliant economies don’t need foreign capital to balance current accounts -- the broadest measure of trade. The dollar benefits as the world’s reserve currency.The franc has advanced 9.2 percent over the past three months, the biggest gainer among 10 major-economy currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has risen 4.6 percent and the dollar is down 2.5 percent.The pound ended a five-day rally against the dollar before a report forecast to show UK retail sales rose in July at a slower pace. Sales including fuel rose 0.3 percent from June, when they gained 0.7 percent, the Office for National Statistics will report, according to the median estimate of economists surveyed by Bloomberg.Bank of England policy makers Spencer Dale and Martin Weale ended their push for an interest-rate increase this month, according to minutes of the Aug. 3-4 meeting published on Wednesday. The nine-member Monetary Policy Committee voted unanimously to hold the key rate at a record-low 0.5 percent. Adam Posen continued to vote for a £50bn ($83bn) expansion of the UK central bank’s quantitative- easing program.“Our economists think more QE is coming, and the anticipation rather than the actuality is where pound could feel the most pain,” BNP Paribas strategists including Ray Attrill in New York wrote in a note to clients. From / Arabian Business News