The Dollar Index rose for a second day before U.S. data tomorrow on first-quarter growth amid speculation the Federal Reserve will curb monetary stimulus.
The Australian dollar fell to the weakest level since October 2011 after the International Monetary Fund cut its growth forecast for China. A gauge of Asian currencies touched an almost eight-month low on concern investors will repatriate funds from emerging markets back to the U.S.
“The dollar is strong,” said Marito Ueda, the senior managing director at FX Prime Corp. (8711), a currency-margin company in Tokyo. “The U.S. economy is steadily recovering, and a reduction in monetary easing appears to be coming into view.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, added 0.3 percent to 84.349 at 6:50 a.m. in London. It reached 84.498 on May 23, the most since July 2010.
The dollar was little changed at $1.2845 per euro after rising 0.6 percent yesterday. The yen traded at 131.57 per euro from 131.59 and was little changed at 102.42 per dollar. The Aussie fell 0.8 percent to 95.40 U.S. cents, after dropping to 95.36, the weakest since Oct. 5, 2011.
The U.S. Commerce Department is likely to say tomorrow the world’s biggest economy grew at an annualized 2.5 percent pace in the first quarter, according to the median forecast of economists surveyed by Bloomberg News. It would be unchanged from the preliminary reading released last month.
U.S. real gross domestic product will probably expand 2 percent this year, compared with a 0.5 percent contraction in the euro region, a separate poll of economists shows. Japan’s economy is estimated to grow 1.4 percent.
The Fed is currently buying $85 billion of government and mortgage debt a month to hold borrowing costs down, a policy known as quantitative easing. Fed Chairman Ben S. Bernanke said on May 22 that the central bank may cut the pace of bond purchases in the next few meetings if policy makers see indications of sustained improvement in economic growth.
“Tapering of QE will start probably in September, October,” Bob Parker, who helps oversee about $400 billion in London as senior adviser at Credit Suisse Asset Management, said in a Bloomberg Television interview. “As we go into the middle of 2014, QE will be finished.”
The dollar has risen 6.1 percent this year, the most among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has slumped 12 percent, and the euro has advanced 3 percent.
Yields (USGG10YR) on 10-year Treasury notes reached 2.23 percent today, a level unseen since April 2012. The extra yield that investors can get by holding Australia’s 10-year notes instead of similar-maturity U.S. debt narrowed to 1.16 percentage points yesterday, the lowest since November 2008.
China’s economy will grow about 7.75 percent this year and next, David Lipton, first deputy managing director of the IMF, said today at a press briefing in Beijing after concluding an annual review of the country. In April, the IMF forecast growth of 8 percent this year and 8.2 percent expansion in 2014.
“The diminishing yield differential is one argument for the Aussie’s move lower,” said Michael Turner, a debt strategist at Royal Bank of Canada in Sydney. “There certainly seems to be some downside risk to growth in Australia.”
The Bloomberg-JPMorgan Asia Dollar Index (ADXY), which tracks the 10 most-active currencies in the region excluding the yen, was little changed at 116.83. It earlier dropped to as low as 116.81, a level unseen since Sept. 27.
“What we’re experiencing now is a round of dollar buying that’s prompted by the rise in U.S. yields, as there’s been expectations for when the Fed could withdraw liquidity from the marketplace,” said Thio Chin Loo, a senior currency analyst at BNP Paribas SA in Singapore.
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