Dollar sees big gains

William Dudley

NEW YORK CITY — The dollar turned higher Tuesday as investors pondered how big an expected program from the Federal Reserve will be.

The dollar has declined sharply over the past two months because investors expect Fed policymakers to announce that it will act further to boost the economy at its Nov. 2-3 meeting. Investors have been pricing in a huge program of bond-buying, which would drive interest rates lower, prompting more borrowing and spending. Such a program would also weigh on the dollar.

Against six major world currencies, it has fallen about 7 percent since late August, when Fed chief Ben Bernanke first hinted at the Fed’s plans. On Oct. 15, the dollar fell to its weakest point against the euro since January above $1.41, and struck its latest 15-year low of 80.42 Japanese yen on Monday.

But investors’ certainty that the Fed will act may be starting to ebb a bit, said Brian Dolan, chief currency strategist at Forex.com.

In a speech Monday night, William Dudley, the president of the Federal Reserve Bank of New York, said that the Fed “cannot wave a magic wand and make the problems remaining from the preceding period of excess vanish immediately. But we can provide essential support for the needed adjustments.”

His speech indicated the Fed may announce a more piecemeal approach of smaller monthly bond purchases of about $100 billion that can be abandoned if the economic outlook improves, rather than a set program of trillions of dollars, said David Watt, senior currency strategist at RBC Capital in Toronto.

And Bank of America Merrill Lynch analyst David Woo said, “Anything short of ($500 billion) in announced purchases over a six-month horizon could actually disappoint the market.”

In the speech, Dudley said that current levels of joblessness and inflation are “unacceptable,” and that further Fed action was “likely to be warranted” unless the economic outlook improved.

Also on Tuesday, a private research group said its measure of Americans’ confidence in the economy inched up to 50.2 this month from 48.6 in September. While that is still far below the reading of 90 that indicates a healthy economy, October’s reading did beat economists’ expectations of 49.2.

In midday trading in New York, the euro slumped to $1.3868 from $1.3976, while the dollar rose to 81.29 Japanese yen from 80.85 yen. The British pound rose to $1.5852 from $1.5748, however.

The dollar gained to 1.0222 Canadian dollars from 1.0186 Canadian dollars, and moved up to 0.9832 Swiss francs from 0.9707 Swiss francs.