Dollar Falls Most Since April Amid Pessimism on Economic Growth

The dollar weakened the most in almost three months as signs U.S. economic growth is flagging damped speculation the Federal Reserve might raise interest rates sooner than anticipated.

New Zealand’s dollar climbed to within a half-cent of a record after the nation’s central bank increased interest rates this month for a third time. The pound headed for its longest run of quarterly gains versus the dollar since 2007 as U.K. growth boosted the case for a jump in interest rates. The U.S. economy added 215,000 jobs in June, about the same as in May, a report next week is forecast to show.

“Growth for the year is set to be uninspiring,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “The dollar’s just staying relatively weak until the data change.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, fell 0.5 percent to 1,005.04 in New York, the third straight weekly decline and the biggest since April 11.

The greenback dropped 0.6 percent to 101.42 yen and touched 101.32, the lowest since May 21. It has fallen 0.3 percent this month, dropped 1.8 percent this quarter and lost 3.7 percent this year against the Japanese currency.

The dollar depreciated 0.4 percent to $1.3649 per euro. It has slipped 0.1 percent in June against the 18-nation currency while gaining 0.9 percent this quarter and 0.7 percent in 2014. The yen rose 0.3 percent this week and 0.2 percent this month to 138.41 per euro.

Low Volatility

A gauge of currency price swings reached a record low. The JPMorgan Global FX Volatility Index fell to 5.49 percent, the least in data compiled by Bloomberg going back to 1992.

New Zealand’s currency is the best performer this month among the U.S. dollar’s 16 major counterparts, advancing 3.2 percent, and the Brazilian real is No. 2, rising 2.1 percent. Norway’s krone lost the most, sliding 2.6 percent.

The kiwi, as the New Zealand dollar is known, climbed after Reserve Bank Governor Graeme Wheeler raised the benchmark interest rate to 3.25 percent June 11. The currency gained 0.9 percent this week to 87.77 U.S. cents and touched 87.94. It reached 88.43 cents on Aug. 1, 2011, the strongest level since exchange-rate controls were scrapped in 1985.

“Given the momentum behind the kiwi at the moment, the prospects are really quite high in the near term that we reach the record,” said Kymberly Martin, a market strategist in Wellington at Bank of New Zealand Ltd. “Interest-rate differentials and low volatility are currently both in favor of the New Zealand dollar.”

Fifth Quarter

Sterling has advanced 2.2 percent since the end of March to $1.7035, set for a fifth quarter of gains, the longest stretch since September 2007. The U.K. currency climbed to $1.7063 on June 19, the highest since October 2008. It gained 0.1 percent this week and 1.7 percent this month.

The U.K.’s economic growth accelerated in the first quarter as business investment surged, a report from the Office for National Statistics showed yesterday. Bank of England Governor Mark Carney told BBC Radio 4 an increase in the key 0.5 percent interest rate could come as early as this year.

The dollar fell against 13 of its 16 major peers this week as the Commerce Department said June 25 U.S. gross domestic product shrank 2.9 percent in the first quarter, the most since 2009. Consumer spending, which accounts for about 70 percent of the economy, increased less than forecast in May, and orders for U.S. durable goods unexpectedly fell, other reports showed.

‘Very Low’

“A weak durable-goods reading once again puts the cat among the pigeons in terms of the timing and the magnitude of any monetary tightening from the Federal Reserve,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said June 25 in a phone interview from Greenwich, Connecticut. “Short-term interest rates are likely to remain very, very low for quite some time, even after the Fed’s finished tapering.”

Central-bank Chair Janet Yellen said after a Fed meeting last week policy makers remain committed to low interest rates for a “considerable time” after ending a bond-purchase program they have used to spur growth. The Fed held its benchmark rate target at zero to 0.25 percent, where it’s been since 2008, while trimming monthly bond-buying to $35 billion, on pace to end the program late this year.

Traders see a 54 percent chance the central bank will raise the rate by the end of July 2015, and 85 percent odds it will go up by December 2015, fed funds futures show.

‘Historic Proportion’

The U.S. unemployment rate was 6.3 percent in June, unchanged from May, economists surveyed by Bloomberg forecast before the Labor Department reports the data July 3. Employers added 217,000 jobs in May, the department said June 15.

“The disjunction between the labor market and the Q1 GDP numbers is an aberration of historic proportion,”said Alan Ruskin, the global head of Group of 10 foreign exchange at Deutsche Bank AG in New York. Deutsche Bank forecasts the U.S. added 225,000 workers in June and that the jobless rate fell to 6.2 percent, he said.

Leading indicators such as those from the Organization for Economic Cooperation and Development and the Conference Board “are still telling you growth is solidly above 2 percent,” Ruskin said yesterday in a phone interview.

The main concern for growth the rest of the year is “that the consumption data that we already have for April and May and some of the other leading indicators of consumption for June have been weaker than anticipated,” Ruskin said.

The Fed will increase its benchmark rate earlier than markets expect, Dean Maki, chief U.S. economist at Barclays Plc in New York, said this week at a media conference.

“We see the first tightening in June 2015,” Maki said.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; 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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.