The euro fell against the dollar amid speculation the rally that made it the strongest major currency in 2013 is due for a pause as central-bank policies diverge.
The yen gained after dropping to the lowest level since 2008 against the dollar as Bank of Japan Governor Haruhiko Kuroda said policy makers will continue stimulus until inflation stabilizes at 2 percent. The euro dropped versus most major peers a day after Latvia became the currency bloc’s 18th member. Brazil’s real declined to a four-month low and the Turkish lira weakened to a record.
The euro has fallen amid “a lot of unwinds from last year,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “There’s a gravitational pull based on the yield differential that moved about a week ago. That’s a fundamental anchor, and I think that, as people get back to the desk today, they’re probably trading based on that.”
The euro dropped 0.7 percent to $1.3672 at 5 p.m. New York time after reaching $1.3630, the lowest since Dec. 20. The greenback fell 0.4 percent to 104.81 yen after rising to 105.44, the most since October 2008. Japan’s currency climbed 1.1 percent to 143.29 per euro.
Treasuries maturing in two years yield about 17 basis points, or 0.17 percentage points, more than similar-maturity German debt, compared with seven basis points on Dec. 12.
The euro and Danish krone each gained 4.2 percent against the dollar last year, the most among 16 major currencies. The yen dropped 18 percent, the biggest decline after the South African rand’s 19 percent plunge.
Brazil’s currency dropped to a level weaker than 2.4 per dollar for the first time since Aug. 27 as the central bank began scaled-back support for the currency. The real depreciated 1.1 percent to 2.3878 per U.S. dollar.
“Brazil was a love story, especially Asian clients who liked the high-yield and commodity story,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co., said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene. “But those stories have fizzled out. We are seeing the unwinding of what was a huge position.”
Sweden’s krona weakened after a report showed manufacturing in the nation increased less last month than economists forecast. The currency slid 1.2 percent to 6.5160 per dollar, and declined 0.5 percent to 8.9087 per euro.
Turkey’s lira slipped to a record 2.1886 per dollar. The currency tumbled 6.4 percent last month, the most since September 2011, as a corruption probe embroiled Prime Minister Recep Tayyip Erdogan’s cabinet and led three ministers to quit.
Fed officials said Dec. 18 they would trim monthly purchases of bonds to $75 billion from $85 billion starting this month. The central bank will probably reduce its quantitative easing in $10 billion increments over the next seven meetings, before ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg on Dec. 19.
As U.S. policy makers moved to tighten monetary policy, European Central Bank President Mario Draghi surprised investors in November by cutting the euro region’s main interest rate to a record 0.25 percent.
“Our European economists are still calling for more policy action from the ECB,” Mark McCormick, a New York-based macro strategist at Credit Agricole SA, said in a phone interview. “That’s the catalyst we’ll need for the euro-dollar to head a little bit lower, at least back down to the 1.32 range throughout the first half of the year.”
Euro adoption completes a journey of more than two decades for Latvia, which became the fourth former communist country in the currency area after Slovakia, Slovenia and neighboring Estonia. Opponents of the switch outnumber proponents two-to-one in the country of two million, according to opinion polls.
Applications for U.S. unemployment benefits declined last week to the lowest level in a month as the volatility typical during the year-end holidays waned. Jobless claims fell by 2,000 to 339,000 in the period ended Dec. 28, Labor Department data showed. The median forecast of 26 economists surveyed by Bloomberg called for 344,000 claims.
A separate report today showed U.S. manufacturing expanded for a seventh month in December. The Institute for Supply Management’s factory index eased to 57 from the prior month’s 57.3, which was the highest since April 2011, the Tempe, Arizona-based group said today. Readings above 50 indicate growth.
“The U.S. will have very strong growth,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said in an interview on Bloomberg Television’s “On the Move” with Anna Edwards. “We’ve got less fiscal tightening, less fiscal drag coming through this year. I think we’ll continue to see the labor market growing and that will provide a favorable backdrop for the dollar.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, rose 0.3 percent to 1,024.78. It climbed 3.5 percent last year.
The yen posted it biggest annual decline since 1979 versus the dollar in 2013 as monetary policy in Japan diverged from the U.S. Kuroda said achieving 2 percent inflation in two years is the BOJ’s goal, according to the interview published yesterday in the Yomiuri newspaper. The central bank won’t necessarily end or scale back its stimulus program in two years, he said, according to the interview.
The yen tumbled 15 percent in the past year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 9.1 percent to lead gainers, and the dollar rose 3.6 percent.
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