Dollar Drops on Fed Outlook; Yen Surges After Abe Election Win

The dollar fell against most major peers as traders tempered expectations of an imminent reduction in Federal Reserve monetary stimulus. The yen surged after Japan’s ruling party won in elections to the upper house.

The U.S. currency extended back-to-back weekly declines against the euro as Pacific Investment Management Co.’s Bill Gross said he expects the Fed won’t tighten policy until 2016 at the earliest. Chairman Ben S. Bernanke last week said it’s “too early” to decide on timing for tapering bond purchases. The yen rose against its 16 major counterparts after Prime Minister Shinzo Abe’s party solidified control of Japan’s parliament, raising concern about whether he will focus on structural reform or on strengthening defense and revamping the constitution.

“The market is already positioned for dollar strength, so any disappointing economic data from the U.S. or dovish comments from policy makers can send the dollar south,” said Yunosuke Ikeda, the head of foreign-exchange strategy at Nomura Securities Co. in Tokyo. “The latest data is showing a little bit of a slowdown, giving a good reason to reduce dollar-bullish speculative positions.”

The dollar weakened 0.8 percent to 99.82 yen as of 9:14 a.m. in Tokyo after earlier falling as much as 1 percent. It declined 0.2 percent to $1.3167 per euro following a 0.6 percent weekly drop to $1.3143 on July 19. The euro slid 0.6 percent to 131.44 yen.

(Source: Bloomberg)