Dollar May Extend Losses on Speculation Fed Won’t Raise Rates

Jan. 14 (Bloomberg) -- The dollar may extend losses versus higher-yielding currencies on speculation the Federal Reserve will keep interest rates low to sustain an economic recovery.

The euro traded near a one-month high against the dollar before a report today forecast to show European industrial output gained in November. Australia’s dollar was close to the strongest level in more than seven weeks as economists estimated government figures today will show employers added jobs in December for a fourth month.

“The dollar will remain in a downtrend,” said Toshiya Yamauchi, manager of currency margin trading at Ueda Harlow Ltd. in Tokyo. “Expectations for Fed rate hikes have waned.”

The dollar traded at $1.4509 per euro at 8:11 a.m. in Tokyo from $1.4510 in New York yesterday, when it touched $1.4579, the lowest since Dec. 16. The dollar fetched 91.42 yen from 91.37 yen. The yen was at 132.63 per euro from 132.59.

Futures trading in Chicago yesterday showed a 34 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from about 41 percent odds a week ago.

New York Federal Reserve Bank President William Dudley said yesterday he wants to see job growth before rate increases, according to a transcript of an interview with PBS Television’s Nightly Business Report. Dudley said he expects short-term rates to stay low for a “considerable period.”

Fed’s Outlook

Fed’s Chicago President Charles Evans said the central bank’s pledge to hold the main interest rate near zero for an “extended period” implies no change for three to four meetings of policy makers.

“Our ‘extended period’ language indicates that’s some substantial number of meetings,” Evans told reporters yesterday after a speech in Coralville, Iowa. “I have said before that’s at least three or four meetings away.”

The Fed’s summary of current economic conditions, known as the Beige Book, said the economy improved in 10 of the central bank’s 12 districts last month. The report released yesterday is used as a basis of discussion at policy meetings, which typically follow two weeks later. The Federal Open Market Committee gathers on Jan. 27.

The euro may advance as industrial production in the economy of the 16 nations using the euro probably rose 0.5 percent in November after dropping 0.6 percent in October, according to the median estimate of economists in a Bloomberg News survey. The European Union’s statistics office in Luxembourg is set to report the data today.

The Australian dollar was at 92.38 U.S. cents from 92.42 yesterday. Employers in the nation probably added 10,000 jobs last month, after creating 31,200 positions in November, according to the median estimate of 19 economists in a Bloomberg News survey. The data are due at 11:30 a.m. today in Sydney. The currency touched 93.26 cents on Jan. 11, the highest since Nov. 18.