Dollar Falls From One-Week High on Debt-Ceiling Vote; Rand Drops

The dollar fell from a one-week high against the euro as the U.S. House voted to temporarily suspend the federal-debt ceiling, increasing investor appetite for higher-yielding assets.

Norway’s krone and Brazil’s real gained versus the greenback. Canada’s dollar slid versus most major peers after its central bank said the need to raise interest rates is less urgent. South Africa’s rand fell to the weakest level since 2009. The debt-limit bill now goes to the Senate, where Majority Leader Harry Reid vowed to pass it unchanged.

“This is a positive for risk appetite and negative for the dollar on top of that,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “There’s a bit of a rosier outlook for risk-oriented assets, but the debt ceiling is uncomfortable for markets, and they’ll eventually have to deal with this again.”

The dollar traded little changed at $1.3318 per euro at 5 p.m. in New York after touching $1.3265 earlier, the strongest level since Jan. 16. The yen gained 0.1 percent to 88.61 per dollar after earlier touching 88.06, the strongest since Jan. 16. It reached 90.25 on Jan. 21, the weakest level since June 2010. The Japanese currency rose 0.1 percent to 118.03 per euro.

Technical Levels

The euro fell earlier versus the dollar, dropping through price levels where automatic sell orders were placed, amid speculation a large investor was selling the shared currency.

“Hearing that a large corporate from Eastern Europe was selling into this move,” Michael LaVina, head of trading in Stamford, Connecticut, at Faros Trading LLC, said in a telephone interview. The currency “definitely hit some stops below $1.3320” after failing to sustain a rise above $1.3330, LaVina said, referring to previously set orders to sell a currency to limit losses.

The measure passed today in Washington removes the debt ceiling for now as a tool for seeking deeper U.S. spending cuts. It lifts the government’s $16.4 trillion borrowing limit until May 19.

The Canadian dollar fell versus the greenback after Bank of Canada policy makers kept their benchmark interest rate at 1 percent, as forecast in a Bloomberg survey. They said that while an increase may still be needed over time, it probably won’t happen soon. The economy will take longer to reach full output, keeping inflation below the bank’s 2 percent target until the second half of next year, Governor Mark Carney said.

The currency depreciated 0.7 percent to 99.92 cents per U.S. dollar and touched C$1.0005, trading weaker than parity for the first time since Nov. 19.

Yen Bets

The yen gained amid speculation that measures announced by the Bank of Japan (8301) won’t be enough to weaken the currency and spur growth. Consumer-price data this week forecast to show the BOJ’s policies have failed to stoke inflation.

The central bank increased its inflation target to 2 percent yesterday and said it will buy 13 trillion yen ($146.6 billion) in assets a month starting in January 2014.

“Adopting the 2 percent target was a relatively bold move, but they need to implement more credible policy to convince the market,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “What will be important for yen direction will be how the market assesses the effectiveness of their policy to meet that target.”

Japan Inflation

Japan’s consumer prices excluding fresh food fell 0.2 percent in December from a year earlier, following a 0.1 percent drop the previous month, according to the median of 23 estimates in a Bloomberg News survey before the data due on Jan. 25. That would be the biggest decline since August.

The BOJ forecast inflation will accelerate to 0.9 percent in the fiscal year starting April 2014.

The yen fell 4.6 percent in the past month, the biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 1.2 percent and the dollar was little changed.

South Africa’s rand dropped to the lowest in more than three years as rising inflation added to concern that growth in Africa’s biggest economy is slowing amid labor protests and civil unrest.

The nation’s consumer price index accelerated to 5.7 percent in December, compared with 5.6 percent in November, Statistics South Africa said.

The rand tumbled 2.3 percent to 9.0625 per dollar and touched 9.0648, the weakest level since April 2009.

Brazil’s real gained versus most major counterparts, strengthening 0.3 percent to 2.0360 per dollar. Norway’s krone appreciated 0.4 percent to 5.5584 to the greenback.

Lower Volatility

A gauge of currency volatility dropped to the lowest in more than a week after climbing on Jan. 18 to the highest since August. JPMorgan Chase & Co.’s G7 Volatility Index, based on three-month options on Group of Seven nations’ currencies, touched 8.15 percent, the least since Jan. 11. It rose last week to 9.19 percent.

Lower volatility makes investments in currencies with higher benchmark interest rates more attractive as the risk in such trades is that market moves will erase profits.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Joseph Ciolli in New York at jciolli@bloomberg.net

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

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