The Dollar Index fell by the most since the first quarter of 2011 after the European Central Bank pledged to protect the euro from unraveling and the Federal Reserve committed to reduce unemployment via open-ended debt buying, which may debase the U.S. currency.
Since July 26, when ECB President Mario Draghi said he would do “whatever it takes” to save the euro, the 17-nation currency rose versus 15 of its 16 most-traded counterparts tracked by Bloomberg. Amid the Fed’s expansion of monetary stimulus, the Dollar Index lost 2.1 percent in the third quarter. The Bank of Japan, which followed the Fed and the ECB in expanding its balance sheet by 10 trillion yen ($130 billion), is scheduled to announce its next policy decision on Oct. 5.
Spain’s cabinet produced its fifth austerity budget Sept. 27 amid speculation the nation will join Ireland, Greece and Portugal in requiring a financial bailout. It announced Friday its banks have a capital deficit of 59.3 billion euros ($76.3 billion), less than previously estimated, according to a test designed to lift doubts about a financial industry hit by real estate losses.
“With Europe, we get talk about removing tail risks,” or potential crisis, Noel Hebert, chief investment officer at Bethlehem, Pennsylvania-based Concannon Wealth Management LLC, which oversees about $250 million, said in a telephone interview. “Bernanke actually opened up the pocket book again. He’s actively expanding the money supply, debasing the currency.”