Dollar Weakens as Yellen Says Labor Recovery ’Far From Complete’

The dollar fell to the lowest level in four weeks after Federal Reserve Chairman Janet Yellen said the recovery in the U.S. labor market is “far from complete,” while repeating the Fed’s statement that asset purchases aren’t on a “pre-set course.”

The U.S. currency weakened versus most of its 16 major peers as analysts said a report this week will show retail sales stalled last month, while the Fed last month voted for another reduction in its monthly bond-buying. The yen fell versus all of its major counterparts as investors sought higher-yielding currencies. The Australian dollar climbed to a four-week high after home prices and business sentiment improved.

Related: U.S. Stocks Rise as Yellen Speech Fuels Economic Optimism

“She didn’t dramatically change the course, in any shape or form, which kept the dollar under pressure,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview. “It was pretty well-advertised in advance.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, dropped 0.1 percent to 1,023.78, at 5 p.m. New York time, after touching the lowest level since Jan. 13.

The U.S. currency gained 0.1 percent to $1.3638 per euro and added 0.4 percent to 102.63 yen. Japan’s currency weakened 0.3 percent to 139.97 per euro.

Price Swings

The JPMorgan G7 Volatility Index was at 7.90 percent after falling to 7.79 percent yesterday, the lowest since Jan. 23.

Kazakhstan’s central bank devalued the tenge by the most in five years as reduced stimulus by the Fed led to capital outflows from emerging markets. The currency will be allowed to trade at 185 per dollar, with a range of 3 tenge on either side, the National Bank of Kazakhstan said in an e-mailed statement today. That indicates a devaluation of 16 percent from 155.63 per dollar at the close yesterday.

The tenge plunged 19 percent to 184.52 per dollar after falling 20 percent to 186.02, the biggest decline since February 2009.

The South African rand gained versus all 16 of its most-traded peers after the country’s jobless rate fell and manufacturing expanded more than economists expected. The currency strengthened 1.6 percent to 10.9670 per dollar.

Pound Up

The British pound rose versus the majority of its major counterparts after an industry report showed U.K. retail sales growth accelerated in January, adding to evidence a recovery is gaining momentum. Sterling appreciated 0.3 percent to $1.6450.

The Aussie rose the most in a week as statistics bureau data showed today house prices surged 9.3 percent in the final quarter of 2013 from a year earlier, the biggest increase in more than three years. Business confidence climbed in January for the first time in four months, a National Australia Bank Ltd. report showed.

“The Aussie dollar cracked above the 90 level on the back of the business confidence data, and generally, sentiment for the currency is becoming less negative,” said Mitul Kotecha, the Hong Kong-based global head of foreign-exchange strategy at Credit Agricole Corporate & Investment Bank SA.

Australia’s currency climbed 1 percent to 90.38 U.S. cents after reaching the highest since Jan. 14.

Chinese Imports

The Aussie has risen 1.9 percent this year, the biggest advance after the yen and New Zealand dollar among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The Japanese currency has gained 3.3 percent and the dollar 0.4 percent, while the euro lost 0.4 percent.

Economists in a Bloomberg survey predict a report tomorrow will show imports by China, the world’s second-largest economy, climbed 4 percent last month from a year earlier after an 8.3 percent gain in December. The data comes after the Lunar New Year holiday between Jan. 31 and Feb. 6.

Yellen delivered her first public remarks as Fed chairman as policy makers pursue plans to gradually scale back the unprecedented bond-purchase program she helped put in place. She repeated the Fed’s outlook for further reductions in “measured steps” and that asset purchases aren’t on a “pre-set course.”

The Federal Open Market Committee said in January it will cut monthly bond purchases by $10 billion to $65 billion, citing labor-market indicators that “were mixed but on balance showed further improvement.”

Futures Indications

Money-market futures are pricing that the U.S. overnight funding rate will move to 0.58 percent by December 2015 and to 1.59 percent by December 2016. That compares to the median estimates of 0.75 percent and 1.75 percent made by Fed officials in December, when the most recent Summary of Economic Projections was released.

“The market is already accepting that, even when the Fed does move rates, it will be cautious in fear of making a policy error,” Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments Ltd., which oversees over $270 billion, said in a telephone interview.

U.S. retail sales stagnated in January after a 0.2 percent gain the month before, according to the median estimate of economists surveyed by Bloomberg News before the U.S. Commerce Department reports the data on Feb. 13. The Labor Department said on Feb. 7 hiring in the U.S. rose by 113,000 in January, fewer than the 180,000 gain forecast by economists.

The dollar will strengthen to $1.34 per euro and 105 per yen by the end of March, according to the median estimate in Bloomberg surveys of analysts.

To contact the reporter on this story: 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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