The dollar rose against the euro and the yen amid speculation global central banks won’t be quick to add stimulus and as yields on U.S. Treasuries reached the highest levels in more than a month, attracting investors.
The euro slid versus most major peers after economists in a European Central Bank survey cut their 2013 growth forecast to 0.6 percent from 1 percent. While the ECB and the Federal Reserve signaled last week there may be more steps to spur economic growth, they refrained from taking action. The extra yield for investing in U.S. two-year debt versus comparable Japanese securities climbed, and U.S. stocks fluctuated.
“Investors went another session without finding much drive to sustain the recent risk rally,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. (WU), said in a telephone interview. “That’s worked in favor of safer assets like the dollar.”
The euro dropped 0.5 percent to $1.2306 at 5 p.m. New York time in its third daily loss. It was headed for a five-day drop after gaining for the past two weeks. The 17-nation currency fell 0.3 percent to 96.69 yen, after rising earlier as much as 0.3 percent. The greenback appreciated 0.2 percent to 78.57 yen.
Treasury two-year note yields touched 0.28 percent, the highest since July 6. Japanese two-year government debt yielded less than 0.1 percent for a difference of 18 basis points, or 0.18 percentage point, almost the most since July 5. U.S. 10- year yields reached 1.73 percent, the highest since May 30.
The Standard & Poor’s 500 Index (SPX) ended the day little changed after falling 0.2 percent and rising 0.3 percent. It gained for the past four days.
Japan’s currency erased an earlier gain versus the dollar after data showed the U.S. trade deficit narrowed more than forecast as a drop in crude oil prices helped cut the nation’s import bill. The gap shrank 11 percent in June to $42.9 billion, the smallest since December 2010, from $48 billion in May, Commerce Department figures showed in Washington.
“The narrowing of the trade deficit and the components of it will help add to second-quarter GDP -- more economic growth,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, said in a telephone interview. “It helps risk sentiment a little bit, which usually hurts the yen.”
The currency had appreciated after the Bank of Japan (8301) refrained from adding stimulus at a policy meeting. The central bank kept its asset-purchase fund at 45 trillion yen ($574 billion) and lending facility at 25 trillion yen, according to a statement released in Tokyo. All 22 analysts surveyed by Bloomberg News predicted no change.
The euro declined 1.6 percent over the past month versus nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The dollar fell 2 percent, while the yen lost 0.9 percent.
Capital has begun flowing out of the countries sharing the euro, signaling “another storm” may be about to break, according to Thomas Kressin of Pacific Investment Management Co., which manages the world’s biggest bond fund.
The euro lost 5 percent of its value since the beginning of May, on a trade-weighted basis, and about 8 percent against the dollar, according to Kressin, head of European foreign exchange at Pimco in Munich. That contrasts with earlier crisis periods when the euro held steady as capital flowed from peripheral nations into the core, Kressin said in a posting on the company’s website.
The economists surveyed by the ECB forecast the region’s economy will shrink 0.3 percent in 2012, compared with a 0.2 percent contraction predicted last quarter.
The euro may drop further, according to Bank of America Merrill Lynch, citing technical analysis. A break below the $1.2290 level clears the way for a drop to the area between $1.2167 and $1.2134 and its 2012 low of $1.2042 in July, MacNeil Curry, head of foreign-exchange and interest-rates technical strategy in New York, wrote today in a client note. The euro may drop all the way to the $1.1876 area of June 2010, he wrote.
The 17-nation currency has a long-term target of $1.10, Nick Sargen, chief investment officer at Fort Washington Investment Advisors Inc. in Cincinnati, said in a telephone interview. The firm oversees $40 billion.
“You have a lot of economies in the periphery that aren’t competitive,” Sargen said on Bloomberg Television’s “Lunch Money” in an interview with Stephanie Ruhle. “If they weren’t tied to the euro, they would’ve been depreciating long ago. The long-term process of adjustment points in the direction of eventual further weakness of the euro.”
The euro has a 40.9 percent chance of breaking up by year- end and a 56.1 percent chance of dissolving by the end of 2013, according to Dublin-based Intrade.com. The odds were 36.4 percent and 55.1 percent a week ago.
The Norwegian krone fell against all of its major counterparts, weakening as much as 1 percent to 5.9375 against the greenback in its biggest intraday drop since July 6.
The Canadian dollar reached a record high against the euro after Bank of Canada Governor Mark Carney said the strength of the nation’s economy may require interest rates to be increased. The loonie, as the currency is nicknamed, climbed as much as 1 percent to C$1.2173 to the shared currency. It gained 0.3 percent to 99.11 cents per U.S. dollar.
Mexico’s peso rose against most major peers after an unexpected decline in claims for unemployment benefits in the U.S boosted the outlook for Latin America’s second-biggest economy. The U.S. is Mexico’s biggest trade partner. Initial jobless claims fell by 6,000 to 361,000 last week, compared with a Bloomberg survey that forecast an increase to 370,000.
The Mexican currency advanced 0.5 percent to 13.0864 per dollar, boosting its rally this year to 6.4 percent, the biggest gain among the dollar’s 16 most-traded counterparts.
ECB officials are working on a plan to buy enough government bonds to ease the region’s financial turmoil, bank President Mario Draghi said after a policy meeting Aug. 2. Details will be released in coming weeks, he said. The ECB held its benchmark interest rate at a record low 0.75 percent.
The Fed said Aug. 1 after a meeting it “will provide additional accommodation as needed” to spur growth and employment. It refrained from action this month.
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