The dollar rose the most in a week as the prospect of U.S. military action against Syria deterred risk-taking and prompted investors to buy the safest assets.
The Australian dollar fell against most of its 16 major peers and India’s rupee and Turkey’s lira dropped to record lows as the prospect of an expanded Middle East conflict damped demand for emerging-market currencies. U.S. Treasury 10-year note yields climbed from the lowest level in almost two weeks before a government report tomorrow forecast to show the economy grew more last quarter than earlier estimated.
“Because of geopolitical risk, market sentiment was pretty bad, but this type of risk is not so important on a longer-term horizon,” said Yoshitsugu Fujita, an assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. Rises in Treasuries yields have contributed to strength in the U.S. dollar, he said.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, advanced 0.4 percent to 1,028.68 at 5 p.m. in New York. It earlier advanced 0.5 percent, the biggest intraday increase since Aug. 21.
The greenback strengthened 0.6 percent to 97.64 yen, its first gain in three days. It rose 0.4 percent to $1.3339 per euro. Japan’s currency declined 0.2 percent to 130.25 per euro.
Benchmark 10-year yields climbed six basis points to 2.77 percent after falling to 2.70 percent, the lowest since Aug. 15.
Turkey’s lira sank to a record on concern Turkey will be hurt by a military action against its neighbor Syria. Some 4,000 Syrians have sought refuge in Turkey in the past five days on fears of a chemical attack, state-run TRT television said.
The lira fell 0.1 percent to 2.0386 per dollar after depreciating to 2.0730, a record according to data compiled by Bloomberg since 1981. India’s rupee fell as much as 4 percent to 68.845 against the U.S. currency. The Aussie slumped 0.5 percent to 89.41 U.S. cents, and touched 88.93 earlier, the weakest level since Aug. 5.
“The broader theme is reduced risk appetite -- you can see that in emerging-market currencies and the Aussie,” Robert Sinche, global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a telephone interview. Strength in the U.S. dollar is “related to U.S. interest rates coming back a little bit.”
JPMorgan Chase & Co.’s Global FX Volatility Index climbed to 10.43 after reaching 10.51, the highest since July 16.
Sterling reversed a decline versus the euro after Bank of England Governor Carney said forward guidance will help the economic recovery in his first policy speech since taking over on July 1. He also said the BOE is focused on sustaining the economic recovery despite the “inevitable shocks ahead.”
The central bank’s Monetary Policy Committee meets on Sept. 5, the same day as the European Central Bank. It has introduced the guidance to prevent a pickup in borrowing costs from undermining the economic recovery.
The pound rose 0.3 percent to 85.91 pence per euro after falling 0.4 percent to 86.52 pence, the weakest since Aug. 7. It dropped 0.1 percent to $1.5526.
Sterling gained 2.1 percent against the greenback this month, the best performance among the major currencies, while the Mexican peso had the biggest loss, at 4.4 percent. The euro and yen gained 0.3 percent and 0.2 percent.
The dollar advanced today as the U.S. and the U.K. said they are prepared to take military action against Syria without authorization from the United Nations Security Council after Russia objected to a resolution offered by the U.K. authorizing action to protect civilians.
Syrian President Bashar al-Assad’s government has denied the employment of chemical weapons.
“Investors have suddenly ramped up their risk aversion to a very high degree,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said in a radio interview with Tom Keene on Bloomberg Surveillance. “We favor the U.S., but what the market is looking for is low beta economics, low beta markets.” Beta is a measure of volatility.
Revised figures from the Commerce Department tomorrow will show U.S. gross domestic product grew at a 2.2 percent annualized rate in the second quarter, a Bloomberg survey showed, faster than the initial reading of 1.7 percent.
Federal Reserve policy makers are debating whether the U.S. economy is strong enough to allow them to pare back monthly purchases of $85 billion in Treasuries and mortgage debt. Officials will reduce the amount at their next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.
Trading in over-the-counter foreign-exchange options totaled $25 billion, from $23 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $6.5 billion, the largest share of trades at 26 percent. Options on the dollar-yen rate totaled $3 billion, or 12 percent.
Euro-dollar options trading was 179 percent more than the average for the past five Wednesdays at a similar time in the day, and greenback-yen trading was 40 percent less, according to Bloomberg analysis.
Dollar-Hong Kong dollar options trading, at $1.6 billion, was 425 percent above average.
The dollar strengthened 5.1 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The euro is the best performer, rising 6.4 percent, while the yen slumped 7.9 percent.
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