VINACHEM

The dollar fell against most of itsmajor peers after the Federal Reserve said it will extend itsmonetary stimulus and stands ready to do more to bolster theeconomy and speed jobs creation.

The 17-nation currency weakened from almost a one-monthhigh as German Chancellor Angela Merkel cast doubt on directsovereign debt buys, trimming speculation that Greece’s newgovernment signaled progress to contain the bloc’s financialcrisis. The U.S. central bank announced plans to continue itsprogram to exchange shorter-term holdings for longer-term debt,while policy makers opted not to undertake additionalquantitative easing. The yen weakened versus all of its 16 most-traded counterparts.

“They’re keeping a bullet in the chamber in case thingsblow up in Europe, which is a very prudent way of handling debtand uncertainty,” said Greg Anderson, a currency strategist atCitigroup Inc. in New York. “If the Fed had used its lastbullet in QE3, that would be worrying for the market.”

The dollar fell 0.2 percent to $1.2707 per euro at 5 p.m.in New York. The U.S. currency rose 0.8 percent to 79.54 yen. Japan’s currency fell 0.9 percent to 101.07 per euro.

Fed Moves

The Fed will expand its program to replace short-term bondswith longer-term debt by $267 billion through the end of theyear.

The continuation of Operation Twist “should put downwardpressure on longer-term interest rates and help to make broaderfinancial conditions more accommodative,” the Federal Open Market Committee said today in a statement at the conclusion ofa two-day meeting in Washington.

“Growth in employment has slowed in recent months, and the unemployment rate remains elevated,” the FOMC said. “Householdspending appears to be rising at a somewhat slower pace thanearlier in the year.”

“The Fed basically went the conservative route extendingit,” said Andrew Busch, a global currency strategist at Bank ofMontreal in Chicago, said in a telephone interview. “That’swhat they had left in the quiver as far as what their short-dated securities were. They certainly didn’t want to take therisk of doing additional quantitative easing purchases due tothe fact that they need probably another month’s worth of datato confirm that things are really bad.”

Slower Growth

Central bank officials cut their estimates for 2012 growthafter last month’s slowdown in hiring and see little progress onunemployment during the rest of the year.

They lowered their central tendency estimate for U.S. 2012gross domestic product growth to 1.9 percent to 2.4 percent from2.4 percent to 2.9 percent in April. Estimates for 2013 centeredaround 2.2 percent to 2.8 percent, compared with 2.7 percent to3.1 percent in the previous forecast.

The Fed bought $2.3 trillion of assets in two rounds ofstimulus known as quantitative easing between December 2008 andJune 2011. The Dollar Index, which Intercontinental ExchangeInc. uses to track the greenback against the currencies of sixmajor U.S. trading partners, lost 14 percent during that period.

The central bank has also kept its benchmark interest rateat zero to 0.25 percent since December 2008.

Norway’s krone rose against all of its major counterparts,appreciating 0.8 percent to 5.8970 per dollar, after thecountry’s central bank left its main interest rate close to arecord low for a second meeting.

Peso Weakens

The Mexican peso fell versus most other major currencies,decreasing 0.2 percent to 13.7092 against the greenback. Mexicancentral bank Governor Agustin Carstens narrowed his economicgrowth forecast for this year, saying the country’s grossdomestic profit will expand 3.5 percent to 4 percent. The bankforecast 4.25 as the top end growth range on May 16.

Germany’s Merkel declined to commit to direct sovereigndebt purchases through the euro-area bailout fund, pushing backon calls by euro-region leaders who backed the measure as a wayto ease the debt crisis.

“There is no concrete planning that I know about, butthere is the possibility of purchasing sovereign bonds on thesecondary market,” Merkel told reporters today in Berlin aftertalks with Dutch Prime Minister Mark Rute.

“She’s not saying anything new that we don’t alreadyknow,” Citigroup’s Anderson said. “She may be, in some way,trying to remind the market that Europe is not rudderless.”

Antonis Samaras, leader of Greece’s New Democracy party,was sworn in as prime minister after Greek political leadersagreed on a coalition that will seek relief from austeritymeasures tied to international loans.

In its final statement, the G-20 backed Europe’s plans toconsider a more integrated banking industry with common deposit insurance, a step that Merkel has resisted. With attentionshifting to a summit of European Union leaders in Brussels onJune 28-29, the G-20 supported EU plans for closer economicunion “that lead to sustainable borrowing costs.”

The shared currency will finish the year at $1.25,according to the median estimate in a Bloomberg News Survey. Theyen will weaken to 82 versus the greenback and the Dollar Indexwill rise to 82.5, separate surveys show.