Dollar Trades Near Week-Low Ahead of Fed’s Beige Book Report

By Kristine Aquino and Masaki Kondo

     July 18 (Bloomberg) -- The dollar was 0.3 percent from its lowest level in a week against the euro before the Federal Reserve releases its Beige Book assessment of economic conditions today.

     Demand for the U.S. currency was tempered after Fed Chairman Ben S. Bernanke said yesterday in testimony to the Senate Banking Committee that policy makers are studying options for further easing. Bernanke is set to appear before a House committee today. The euro failed to extend an advance from yesterday versus the yen before Germany’s lower-house lawmakers vote tomorrow on aid to recapitalize Spanish banks.

     “Markets are tilted toward the view that additional monetary easing will be needed, leading to dollar selling,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The possibility of more easing is gradually increasing as a series of economic indicators is worsening.”

     The dollar fetched $1.2286 per euro as of 8:01 a.m. in Tokyo from yesterday, when it touched $1.2317, the weakest level since July 10. The greenback was at 79.11 yen after climbing 0.2 percent to 79.06 yesterday. The 17-nation euro was little changed at 97.20 yen after rising 0.4 percent to 97.21 in New York.

     “We haven’t really come to a specific choice at this point, but we are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market,” Bernanke said, responding to questions during yesterday’s testimony in Washington.

                           Fed Policy

     Bernanke and his colleagues on the Federal Open Market Committee are scheduled to gather for a two-day policy meeting starting on July 31. Last month, they decided to extend the so- called Operation Twist program that lengthens maturities of assets on the Fed’s balance sheet to the end of the year.

     The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 to 2011, seeking to cap borrowing costs and stimulate the economy.

     A report from the Commerce Department today may show housing starts climbed to a 745,000 annual pace last month from 708,000 in May, according to the median estimate in a Bloomberg News survey. First-time claims for jobless benefits probably increased to 365,000 in the week ended July 14 from 350,000 in the previous period, a separate poll showed before figures form the Labor Department tomorrow.

     In Germany, the Finance Ministry formally asked lawmakers in a letter dated July 16 to support Spanish bank recapitalizations of as much as 100 billion euros ($122.9 billion) by the European Financial Stability Facility and the transfer of the program to the future European Stability
Mechanism. Chancellor Angela Merkel will get “the majority she needs” at a vote tomorrow, Steffen Seibert, her spokesman, told reporters at a regular government press conference July 13.