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Dollar Weakens Versus Currencies of Commodity Exporters; Sterling Slumps

The dollar dropped against currencies of commodity exporters including Norway and New Zealand as raw- material prices and stocks rose, fueling investor appetite for higher-yielding assets.

The greenback fluctuated versus the euro after minutes of the Federal Reserve’s last meeting showed officials began to coalesce on a strategy to reverse record monetary stimulus by ending their reinvestment policy and later raising interest rates. Sterling was the worst performer among major currencies as minutes of the Bank of England’s May 5 meeting showed most policy makers said higher rates might hinder recovery.

“Commodities are driving what is happening in the foreign- exchange market today,” said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “The kiwi, the krone and the krona, the high-beta currencies, are outperforming against the dollar.” Beta measures risk relative to a market.

South Africa’s rand rose versus all of its 16 major peers, strengthening 0.6 percent to 6.9113 per dollar at 5 p.m. in New York. Gold and platinum are South Africa’s biggest exports. New Zealand’s dollar, nicknamed the kiwi, gained 0.5 percent to 78.90 U.S. cents. Norway’s krone and Sweden’s krona rose.

The dollar was little changed versus the euro at $1.4249, compared with $1.4237 yesterday. It earlier weakened 0.3 percent and gained 0.3 percent. The yen fell 0.3 percent to 81.64 per dollar after gaining earlier as much as 0.6 percent. It touched 81.77 yesterday, the weakest since April 28. The Japanese currency dropped 0.3 percent against the euro to 116.30 yen.

Commodity Index

The Thomson Reuters/Jefferies CRB Index of raw materials climbed 2.3 percent in its first gain in four days. The Standard & Poor’s 500 Index of stocks, which slid to its lowest level in almost four weeks yesterday, advanced 0.9 percent.

The Swedish krona appreciated 0.4 percent to 6.2996 per dollar, while Norway’s krone strengthened 0.5 percent to 5.5416 to the greenback.

New Zealand’s currency also advanced as the nation’s statistics agency said producer input prices gained 2.2 percent in the first quarter and confidence grew.

The ANZ-Roy Morgan consumer confidence index climbed to 103.2 from 101.4 in April, ANZ National Bank Ltd. said in an e- mailed statement. A number greater than 100 shows optimists outnumber pessimists.

Fed Minutes

Minutes released today of the Fed’s policy meeting on April 26-27 showed that almost all officials agreed the “first step toward normalization” should be ceasing reinvestment of principal payments on mortgage debt that began in August. A majority preferred to sell the Fed’s securities after raising short-term interest rates.

Talks over the exit strategy don’t mean tightening “would necessarily begin soon,” the minutes said.

“The market is not liking this, as far as the currencies are going,” said Joseph Trevisani, chief market analyst at FX Solutions Inc. in Saddle River, New Jersey. “If the market had taken this as a new pronouncement in something that answered its concerns, then you would have had a strengthening dollar, and you have not.”

Policy makers are discussing how quickly to begin withdrawing record stimulus after completing the purchase of $600 billion in U.S. Treasuries by the end of June. They have held the benchmark interest rate at zero to 0.25 percent since December 2008.

St. Louis Fed President James Bullard said earlier in a Bloomberg Television interview in New York that “it is reasonable” for the central bank to tighten policy by year-end by allowing its balance sheet to decline.

Pound Drops

Sterling declined 0.6 percent to 88.10 pence versus the euro and slid 0.6 percent to $1.6161 as minutes of the British central bank’s last meeting published today indicate Governor Mervyn King and five other members of the nine-member Monetary Policy Committee voted for no change in the record low 0.5 percent target lending rate.

Andrew Sentance maintained his call for a half-point increase, Chief Economist Spencer Dale and Martin Weale continued a push for a quarter-point advance, and Adam Posen kept up a call for more bond purchases.

“There has been nothing to change our view that there is going to be no hike to rates coming out of the U.K. through the rest of the year, and any reinforcement to that is a big deal to the pound,” said David Mann, regional head of research for the Americas at Standard Chartered in New York.

The pound has lost 0.4 percent this year, according to Bloomberg Correlation-Weighted Currency Indexes, a gauge of 10 developed-nation currencies. The dollar has fallen 4.1 percent, while the euro has risen 2.7 percent.

European Recovery

Europe’s recovery is becoming more solid and is undeterred by tension in sovereign-debt markets, European Union Economic and Monetary Commissioner Olli Rehn said. The base of the expansion is “broadening from exports to domestic demand, and thus the recovery is becoming more solid and self-sustaining,” he said at a conference in Brussels today.

European Central Bank officials ruled out a Greek debt restructuring, clashing with political leaders over a solution to the region’s sovereign-debt crisis.

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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