The dollar fell to a two-week low versus the euro as the exit of former Treasury Secretary Lawrence Summers from the race to lead the Federal Reserve damped bets for an early halt to expansionary monetary policy.
The U.S. currency weakened versus all except one of its 16 major counterparts as Summer’s decision fueled speculation the central bank will maintain stimulus that tends to weaken a nation’s foreign exchange. Australia’s dollar climbed to a three-month high as the prospect of U.S. building support for a plan to eliminate Syrian chemical weapons encouraged demand for higher-yielding assets. The Turkish lira jumped the most since October 2011.
“It’s the Summers thing mainly and then perhaps to some extent behind that as well there’s the agreement on Syria,” said Steve Barrow, the head of Group-of-10 research at Standard Bank Plc in London. “The dollar will probably stay a bit softer against the riskier currencies. The emerging market currencies, or the riskier G-10 currencies of the Aussie, kiwi and Canadian dollar, are reasonably well set against the dollar.”
The dollar dropped 0.4 percent to $1.3353 per euro as of 10:53 a.m. in London after touching $1.3382, the weakest level since Aug. 28. The U.S. currency fell 0.6 percent to 98.80 yen after reaching 98.46, the least since Sept. 2. The euro was little changed at 131.93 yen.
Obama had mentioned Summers and Fed Vice Chairman Janet Yellen as candidates to lead the central bank after Ben S. Bernanke’s term as chairman expires Jan. 31, with policy makers preparing to reduce bond purchases, known as quantitative easing. Summers until yesterday was the president’s favorite. The Syria debate worked against Summers, giving those opposed to his nomination time to keep pressure on the administration, according to a person familiar with the process who asked for anonymity.
“I have reluctantly concluded that any possible confirmation process for me would be acrimonious and would not serve the interests of the Federal Reserve, the Administration, or ultimately, the interests of the nation’s ongoing recovery,” Summers wrote in a letter dated yesterday to President Obama.
Twenty U.S. senators, including 19 Democrats and one independent, signed a letter of support for Yellen in July. If nominated and confirmed, she’d be the first woman to head the central bank. Donald Kohn, a former Fed vice chairman, was also on Obama’s candidate list, the president said earlier.
“News that Summers had withdrawn from consideration for the Fed post has surprised the market as he had been widely tipped to take over from Bernanke,” said Imre Speizer, a market strategist at Westpac Banking Corp. (WBC) in Auckland. “Given that he was also perceived to be less QE-friendly than Yellen, the other main contender, the U.S. dollar has fallen.”
The Fed is forecast to begin dialing back its unprecedented stimulus program as early as this week. The Federal Open Market Committee will slow its monthly asset purchases to $75 billion from $85 billion at a two-day meeting that starts tomorrow, according to a Bloomberg News survey of economists on Sept. 6.
The Australian, New Zealand and Canadian dollars advanced as U.S. Secretary of State John Kerry tries to build support for a plan to find, secure and destroy Syria’s chemical weapons. He will meet with French President Francois Hollande and the foreign ministers from France and the U.K. after negotiating an accord with Russian Foreign Minister Sergei Lavrov.
Australia’s dollar climbed 1.3 percent to 93.64 U.S. cents after reaching 93.94, the most since June 19. It gained 0.7 percent to 92.51 yen. New Zealand’s dollar rose 0.9 percent to 82.05 cents and was up 0.3 percent at 81.05 yen. The Canadian currency gained 0.5 percent to C$1.0299 per U.S. dollar.
Turkey’s lira strengthened 1.6 percent to 1.9959 per dollar, set for the biggest daily gain since Oct. 24, 2011.
The European Central Bank has room for maneuver as long as inflation expectations are well anchored, ECB board member and chief economist Peter Praet told French daily Les Echos in an interview. If money-market tensions worsen, the ECB could act, for example, to reduce the “corridor” between different rates, he said.
The dollar has depreciated 1.1 percent in the past week, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen and the euro lost 0.3 percent.
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