The 17-nation currency rose for the first time in three days against the greenback on speculation that the U.S. central bank may implement a third round of quantitative easing, which would debase its currency. The euro also rose against the dollar and the yen after its relative strength index against both counterparts dropped to a level that indicates it may reverse direction. The Australian dollar declined to the least in more than a year versus the greenback after the Reserve Bank of Australia held its key rate at 4.75 percent.
“Bernanke did hold out the possibility of further Fed action,” said Alan Ruskin, global head of Group-of-10 foreign- exchange strategy at Deutsche Bank AG in New York. “It’s largely a reiteration of what he’s said before, but it’ll reaffirm that they’re not out of bullets. People are very short the euro and there is some short-covering as well.”
The euro appreciated 0.7 percent to $1.3271 at 10:47 a.m. in New York, from $1.3176, after touching $1.3146, the weakest since Jan. 13. It rose 0.8 percent to 101.82 yen from 100.97 yen yesterday. It touched 100.76, the least since June 2001. The dollar rose 0.1 percent to 76.74 yen.
The euro traded at 27.9 on its 14-day relative strength index against the dollar, falling below 30 for a second day. It was at 29 on a similar index versus the yen. A reading below 30 signals that an asset may be due to reverse direction.
European finance ministers meeting in Luxembourg considered “technical revisions” to a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion- euro rescue. That “private sector involvement” includes debt swaps and rollovers.
“As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, told reporters today. “These are technical revisions we are discussing.”
The ministers also pushed back a decision on the release of Greece’s next loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year.
“Markets are taking a pause after very strong euro selling in the last two days,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “It’s not to suggest that the fundamental news has improved to push up the euro. Peripheral European concerns will continue to garner market attention.”
The Fed “will continue to closely monitor economic developments and is prepared to take further action as appropriate to promote a stronger economic recovery in a context of price stability,” Bernanke said today in testimony to Congress’s Joint Economic Committee in Washington.
The remarks signal Bernanke may not be finished after attempts in August and September to strengthen record monetary stimulus with unconventional tools. The central bank’s near-zero benchmark interest rate and $2.3 trillion of housing and government-debt purchases since 2008 have failed to produce self-sustaining growth in the economy and employment.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, reached 79.823, the highest level since Jan. 13, before trading at 79.400.
The U.S. currency gained 8.8 percent in the past month in the second-best performance among the 10 developed-nation peers tracked by Bloomberg Correlation-Weighted Currency Indexes. The yen appreciated 8.9 percent in the same period.
Australia’s central bank signaled it has scope to lower the nation’s benchmark interest rate if necessary as inflation pressures ease.
Governor Glenn Stevens held the overnight cash rate target at 4.75 percent, he said in a statement released today in Sydney, matching the prediction of all 22 economists surveyed by Bloomberg News. The outlook for consumer prices through 2013 “may now be more consistent” with the Reserve Bank’s target of 2 percent to 3 percent, he said.
The Australian dollar slid 0.9 percent to 94.38 U.S. cents. It fell to 94.14 cents earlier, the least since Sept. 20, 2010.