Dollar Falls to Seven-Week Low as U.S. Recovery Falters

The dollar slumped to its lowest level against a basket of major peers in seven weeks as reports this week highlighted speculation the U.S. economic recovery hasn’t fully gained traction.

The U.S. currency dropped for a third day versus the yen on bets the Federal Reserve will keep borrowing costs at almost zero after gross domestic product shrank 2.9 percent in the first quarter. Sweden’s krona weakened to a 2 1/2-year low against the euro as retail sales data supported forecasts for rate cuts when the Riksbank meets next week. The South Korean won advanced to the strongest since August 2008.

“The dollar lost a bit of data support this week,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “Markets understandably feel a little bit nervous about the economic momentum after the first-quarter GDP revisions.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, dropped 0.3 percent to 1,005.04 at 5 p.m. in New York. It touched 1,004.91, the lowest level since May 9.

The dollar depreciated 0.3 percent to 101.42 yen and touched 101.32, the lowest since May 21. The U.S. currency weakened 0.3 percent to $1.3649 per euro. The yen was little changed at 138.41 per euro.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the Australian dollar against its U.S. peer compared with those on a drop -- so-called net longs -- was 33,463 on June 24, the most since April 2013, from 27,029 on June 17. Speculators also added to bets on a gain by Brazil’s real against the U.S. currency, lifting net longs to 14,255, the most since May 2013.

Top Performers

New Zealand’s currency is the best performer this month among the U.S. dollar’s 16 major peers, advancing 3.3 percent, and the second-best performer of the year. The Norwegian krone lost the most this month, sliding 2.5 percent.

Sweden’s krona declined the most this quarter, falling 3.9 percent, followed by its Norwegian counterpart, which slipped 2.3 percent. South Korea’s won added 5 percent.

The won gained 0.3 percent to close at 1,013.60 per dollar in Seoul after official data showed South Korea’s current-account surplus widened and foreign direct investment increased. The won touched 1,013.25, the strongest level since August 2008, and posted a 0.7 percent weekly advance.

“The reports are helping bolster expectations for more gains in the won,” said Hong Seok Chan, a Seoul-based currency strategist at Daishin Economy Research Institute. “Increasing foreign direct investments are a clear endorsement of confidence in Korea’s economic fundamentals.”

Krona Drops

Sweden’s currency fell against most major peers after a report showed retail sales dropped 0.7 percent last month, more than double the 0.3 percent slide predicted by economists surveyed by Bloomberg. Riksbank policy makers will announce their decision on rates on July 3.

The krona declined 0.2 percent to 9.1895 per euro after reaching 9.2122, the weakest level since November 2011. It was little changed at 6.7331 per dollar, while declining for a third week, its longest losing streak since April.

New Zealand’s currency was little changed at 87.77 U.S. cents. It earlier climbed to 87.94 cents, approaching the high of 88.43 set on Aug. 1, 2011, that was the strongest since exchange-rate controls were scrapped in 1985. The kiwi rose 0.9 percent since June 20 in its fourth weekly gain, the longest streak since April 2013.

The yen gained amid speculation the Bank of Japan will refrain from boosting monetary stimulus after official data showed Japanese consumer prices rose last month at the fastest pace in more than three decades, while the unemployment rate fell to the lowest since 1997.

‘Significant Event’

The currency rose against 13 of its 16 major peers and, versus the dollar, traded beyond its 200-day moving average of 101.71 yen for a third consecutive day.

“Breaking through the 200 day moving average is obviously a significant event as far as market activity is concerned,” Ian Stannard, head of European currency strategy at Morgan Stanley in London, said by telephone. “That opens the way for dollar-yen to come under some further pressure.”

U.S. government reports this week showed gross domestic product shrank more than previously estimated in the first quarter, while durable-goods orders unexpectedly declined in May. Citigroup Inc.’s U.S. Economic Surprise Index, a gauge of whether data beat or fell short of economists’ forecasts, dropped to minus 23.1 yesterday, the lowest since May 1.

Yields on benchmark 10-year Treasuries (USGG10YR) fell as much as two basis points, or 0.02 percentage point, to 2.51 percent, the lowest since June 2.

To contact the reporter on this story: Rachel Evans in New York at revans43@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey, Paul Cox

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