In The News

Dollar tanks but stocks rise on Fed easing hopes

LONDON — World markets mostly rose Thursday as investors remained buoyed by the prospect of more monetary stimulus from the Federal Reserve. However, predictions of looser U.S. policy have not done the dollar any good as it slid to a 15-year low against the yen and multi-month troughs against the euro and the pound.

In Europe, Germany's DAX was up 29.17 points, or 0.5 percent, at 6,463.69 while the CAC-40 in France was up just over a point at 3,829.75. The FTSE 100 index of leading British shares was down 16.61 points, or 0.3 percent, at 5,730.74.

Wall Street was poised to add to Wednesdays' gains at the open later — Dow futures were up 26 points, or 0.2 percent, at 11,068, while the broader Standard & Poor's 500 futures rose a point to 1,175.30.

Once again the main focus in the markets is on what the Fed is planning to do at its next rate-setting meeting in early November to shore up the U.S. economy and prevent prices from falling. The minutes to the last meeting of the Federal Open Market Committee gave a big hint that the Fed is planning another monetary stimulus, that could involve the setting of an inflation target.

All eyes will be on Fed chairman Ben Bernanke Friday when he delivers a speech on monetary policy, more or less at the same time as monthly inflation figures are set to show price pressures in the U.S. economy remain subdued.

Analysts said it's no longer a question of if but how and how much money the Fed will pump into the U.S. economy.

Stocks have been buoyant for over a week as investors have priced in the growing likelihood that the Fed would join the Bank of Japan in easing monetary policy further in an attempt to further drive down rates on mortgages, corporate loans and other debt in the ultimate hope of boosting economic activity and supporting prices.

Though the prospect of more dollars in the financial system has been a boon to stocks, the dollar has tanked.

"The dollar sell-off has accelerated following the release of the latest set of FOMC minutes which had signaled that members are considering more unconventional measures to lift inflation expectations including introducing a price level or nominal GDP target," said Lee Hardman, currency economist at the Bank of Tokyo-Mitsubishi UFJ.

"Dollar holders' anxiety over the potential implications of upcoming Fed policy actions has understandably ratcheted up another notch," Hardman added.

The already-pressured dollar was hit further by the news that the Monetary Authority of Singapore widened the trading band for the Singapore dollar amid rising worries over inflation and said it was maintaining its policy of a modest and gradual appreciation of its currency.

"This move has prompted further U.S. dollar selling, especially in Asian currencies, sending the Australian dollar near to parity, and the yen to new 15 year highs," said Michael Hewson, market analyst at CMC Markets.

By early afternoon London time, the euro was 0.8 percent higher at $1.4065. Earlier it had risen as far as $1.4121, its highest level since late January — the euro has returned to favor recent given the seeming policy divergence between the Fed and the European Central Bank, which has balked at the idea of further monetary easing.

Meanwhile, the British pound was 0.8 percent firmer at $1.6022, just shy of its earlier eight-month high of $1.6066.

If that wasn't enough, the Australian dollar was near breaking parity with the dollar for the first time in 28 years — having earlier got as close as $0.9993.

And the dollar slid 0.8 percent to 81.11 yen, just above its earlier 15-year low of 80.94 yen.

The yen is now within touching distance of its post-World War II low against the dollar of 79.75 yen, which will do nothing to lift the mood among Japan's export-heavy business executives, who have voiced their worries about the export-sapping appreciation of the currency.

As a result, the markets are on the lookout for another intervention from the Bank of Japan — last month it bought dollars and sold yen directly for the first time in six years to stem the tide.

"If the intervention policy is to regain its credibility they cannot really afford to let this rate crack 80 yen too soon," said Daragh Maher, deputy head of global FX strategy at Credit Agricole.

Earlier in Japan, stocks joined in the global rally and the benchmark Nikkei 225 stock index jumped 180 points, or 1.9 percent, to 9,583.51.

South Korea's Kospi added 1.2 percent to 1,899.76, while Australia's S&P/ASX 200 rose 1.7 percent at 4,699.1, as did Hong Kong's Hang Seng index, which closed at 23,852.17.

Benchmark oil for November delivery was up 44 cents to $83.45 a barrel in electronic trading on the New York Mercantile Exchange.

Associated Press Writer Pamela Sampson in Bangkok contributed to this report.

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