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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.

“The ECB announcement to buy one- to three-year bonds in the periphery” shaped currency markets last quarter, George Davis, chief technical analyst for fixed income and currency strategy in Toronto at Royal Bank of Canada, said in an interview. “It was the opening of a new chapter.”

The dollar fell 1.5 percent during the past three months to $1.2866 in New York and touched $1.3172 on Sept. 17, the least since May. The common currency weakened 0.8 percent to 100.21 yen. The dollar lost 2.3 percent to 77.96 yen.

Big Winner

Sweden’s krona appreciated more than all of its major peers versus the dollar this quarter, gaining 5.4 percent. The South African rand had the biggest quarterly decline, slipping 1.8 percent versus the greenback

Brazil’s real has lost 7.9 percent versus the dollar in 2012, almost three times the decline of the rand, the second-biggest loser. The Mexican peso leads all 16 of the dollar’s biggest peers with a gain of 8.4 percent this year.

The New Zealand dollar led all major currencies this month against the greenback, appreciating 3.3 percent. The real increased the least out of 16 counterparts versus the dollar, gaining 0.2 percent.

The euro has fallen 0.7 percent during the past three months against a basket of nine other developed-market currencies, including the yen, pound and Australian dollar, according to Bloomberg Correlation-Weighted Indexes. Japan’s currency has declined 2.2 percent and the greenback has lost 4.3 percent, the most.

Bond Buying

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 yesterday 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.

The ECB said it may buy bonds with maturities as long as three years. Europe’s central bank said it planned to sterilize its bonds purchases, taking out as much liquidity as it injects, while the Fed announced unsterilized debt purchases, which increase the nation’s money supply.

Frustrated by the slow pace of the U.S. recovery, Fed Chairman Ben S. Bernanke announced Sept. 13 that the central bank would likely keep rates at a record low and purchase $40 billion of mortgage bonds per month in a third round of so called quantitative easing, or QE3, until the jobs market shows “sustained improvement.” The Fed is mandated to maintain price stability and full employment.

Dollar Index

Intercontinental Exchange Inc.’s Dollar Index, tracking the greenback against six major U.S. trading partners, declined to 78.601 on Sept. 14, the lowest since February.

“The Fed’s action to take their dual mandate that much more seriously in pursuit of additional measures was enormous,” Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York, said in a telephone interview. “It was one of the more substantive moves I’ve seen from the Fed in the last 30 years.”

Expansion of America’s gross domestic product is forecast to slow to 2.1 percent in 2013 from 2.2 percent this year, according to the median estimate of economists surveyed by Bloomberg. The unemployment rate dropped to 8.1 percent in August as Americans exited the workforce. The rate hasn’t been less than 8 percent since January 2009.

’Tail Risk’

“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.”

Growing risk for Japan’s economy to shrink this quarter and the failure of central bank loosening to dislodge deflation may increase pressure for officials to ease at either of two meetings next month.

Signs that a global slowdown is undermining a Japanese recovery prompted the central bank to unexpectedly expand its asset-purchase fund this month. BOJ Governor Masaaki Shirakawa and his colleagues gather to set policy twice next month, on Oct. 4-5 and Oct. 30, with Deputy Governor Hirohide Yamaguchi saying last week that the bank will take “bold steps” if necessary.

“The growth data is disconcertingly weak,” Deutsche’s Ruskin said. “Even the Bank of Japan tried to surprise” markets through further easing, he said.

China is scheduled to release its manufacturing purchasing managers index tomorrow, with economists surveyed by Bloomberg News predicting a reading of 50, the level that divides contraction from expansion. Fitch Ratings lowered its forecast for growth in China this year, citing a “deteriorating global growth outlook.” The credit rating company predicts China’s economy will expand 7.8 percent, compared with an earlier estimate of 8 percent.

The yuan strengthened 1.1 percent this quarter to 6.2847 per dollar.