The dollar dropped to a two-month low against the euro and fell versus the yen as reports showed manufacturing in the New York and Philadelphia regions expanded at the slowest pace this year.
The euro advanced above $1.29 for the first time since May as demand at Spain’s government bond sale eased concern that nations in the currency region won’t be able to finance their deficits. The yen appreciated against most of its major counterparts as evidence of U.S. economic weakness discouraged demand for higher-yielding assets.
“There’s a weak-dollar story with the U.S. data continuing to underperform,” said Brian Dolan, chief strategist at FOREX.com, a unit of the online currency trading firm Gain Capital in Bedminster, New Jersey. “There’s some selling of the yen crosses on the weak data.”
The euro gained 1.6 percent to $1.2941 at 4:14 p.m. in New York, from $1.2743 yesterday, after touching $1.2946, the highest level since May 10. The euro increased 0.5 percent to 113.18 yen, from 112.66. The dollar declined 1.1 percent to 87.46 yen, from 88.41.
Brazil’s real slid 1.5 percent to 49.40 yen and South Africa’s rand dropped 1.4 percent to 11.58 yen on speculation investors reduced trades in which they borrow where interest rates are low to buy higher-yielding assets elsewhere. Japan’s target lending rate of 0.1 percent makes the yen popular for funding such transactions.
The Standard & Poor’s 500 Index advanced 0.1 percent, erasing a 1.3 percent drop, as investors speculated that Goldman Sachs Group Inc. will settle its fraud case.
The Federal Reserve Bank of New York’s general economic index and the Philadelphia Fed’s gauge both fell in July to 5.1, reflecting the slowest pace of manufacturing expansion this year. Readings greater than zero signal growth.
U.S. producer prices dropped 0.5 percent last month after a 0.3 percent decrease in May, the Labor Department reported. The median forecast of 73 economists in a Bloomberg News survey was for a 0.1 percent drop.
The euro rose earlier against the dollar after Spain’s debt sale drew stronger demand. The nation sold 3 billion euros ($3.8 billion) of 15-year bonds, attracting bids worth 2.57 times the securities offered, compared with 1.79 the last time they were sold in April. Spain, which is cutting spending, has the third- largest deficit in the euro region.
“We are beginning to see good news from Europe and bad news from the U.S.,” said Kathy Lien, director of currency research at the online trader GFT Forex in New York. “The Spanish bond auction received a very strong amount of demand. It’s supporting the euro-dollar rally.”
The two-year Treasury note’s yield dropped to the all-time low of 0.5767 percent, making dollar-denominated assets less attractive to international investors. The yield on the two-year German note touched 0.81 percent, the highest since May 4.
The yield advantage of two-year German notes over U.S. debt increased to 0.21 percentage point, the widest since February. The U.S. yield was higher from March to June as the European sovereign-debt crisis spread.
Minutes of the Fed’s June 23 meeting released yesterday showed policy makers trimmed their forecasts for growth and said risks to the recovery had increased.
If the U.S. economic outlook worsened, policy makers would need to consider whether additional stimulus was appropriate, according to the minutes.
Goldman Sachs lowered forecasts for the dollar against the euro and yen on slowing U.S. growth and “reasonably solid” European economic data.
Goldman Sachs View
The euro will rise to $1.35 in six months, compared with a previous call for $1.15, Goldman Sachs said in a report yesterday. The dollar will trade at 83 yen in six months, compared with an earlier target of 94 yen, Goldman Sachs said.
Australia’s dollar fell on speculation slower growth in China will reduce demand for commodities. The Aussie declined 1.3 percent to 77.22 yen, from 78.24 yen, and decreased 0.2 percent to 88.32 U.S. cents, from 88.51 cents.
China’s economic expansion eased to 10.3 percent in the second quarter and industrial production cooled in June more than forecast, signaling a deeper second-half slowdown.
“Because of its heavy reliance on Chinese economy, any bad news that comes out of that country hurts sentiment toward Australia and the Aussie,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.