Dollar Index Declines to Lowest Since 2008 on Economy; Yen Gains

U.S. Federal Reserve Chairman Ben S. Bernanke
Ben S. Bernanke, chairman of the U.S. Federal Reserve, signaled yesterday in his first press conference after a policy decision that the central bank will maintain its record monetary stimulus. Photographer: Joshua Roberts/Bloomberg

The Dollar Index fell to its lowest level in more than two years as the U.S. economy expanded in the first quarter at a slower rate than forecast, encouraging the Federal Reserve to keep borrowing costs low.

The yen appreciated versus all of its major counterparts after a report showed Japanese investors sold foreign assets last week. Brazil’s real was the biggest loser versus the dollar after the central bank said it will increase borrowing costs at a slower pace for a longer period than initially planned.

“The U.S. dollar looks very heavy, and people are looking for reasons to sell it,” said Firas Askari, head currency trader at Bank of Montreal in Toronto. “The momentum we did seem to be having in the U.S. economy seems to be hitting some headwinds, but the headwinds seem to be temporary. Best-case scenario: U.S. economy is lukewarm.”

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped 0.6 percent to 73.116 at 5 p.m. in New York, from 73.519 yesterday, after touching 72.871, the lowest level since July 2008.

The New Zealand dollar decreased for the first time in three days versus its U.S. counterpart after Reserve Bank Governor Alan Bollard called the currency’s recent advance “unwelcome” and policy makers held the official cash rate at a record low 2.5 percent. The kiwi dropped 0.7 percent to 80.25 U.S. cents after reaching 81.08 cents yesterday, the highest level since March 2008.

Weaker Real

Brazil’s real slid as much as 1.9 percent to 1.5963 versus the dollar as policy makers indicated that a “substantial” part of their anti-inflationary effort has already been implemented given the recent rate increases and measures to curb credit. They boosted the Selic rate by a quarter-percentage point to 12 percent on April 20.

The yen rallied as Japanese investors were net sellers of foreign bonds during the week ended April 22. The total net sale was 162.8 billion yen ($2 billion).

“The yen is firmer today because it now seems that there is more of a potential for repatriation back into the economy, which would drive up demand,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “Over the long term, the BOJ is going to continue to ease policy, which will keep the yen soft and in this range of 81 to 83.”

The U.S. currency fell against the euro and yen after the Commerce Department reported that gross domestic product rose at a 1.8 percent annual pace in the first quarter after a 3.1 percent rate of expansion in the last three months of 2010. The median forecast of 80 economists in a Bloomberg News survey was for a 2 percent pace of growth.

Dollar Versus Euro

The dollar slid 0.2 percent to $1.4823 versus the euro, compared with $1.4788, after touching $1.4882, the weakest level since December 2009. The greenback slid 0.8 percent to 81.54 yen, from 82.16. The yen rose for the first time in five days against the euro, climbing 0.5 percent to 120.83.

The Dollar Index fell for an eighth day in its longest losing streak since March 2009 after Fed Chairman Ben S. Bernanke signaled yesterday in his first press conference following a policy decision that the central bank will likely continue reinvesting maturing debt after its $600 billion program of bond buying expires in June.

The gauge may rebound as technical indicators suggest the drop in the U.S. currency will be hard to sustain, according to Bank of Tokyo-Mitsubishi UFJ Ltd.

Technical Indicator

The Williams %R indicator for the measure was at minus 93.6359 on a weekly basis, exceeding the threshold of minus 80 that some traders see as a sign an asset’s price has fallen too fast and may reverse course.

“With the Williams %R at almost 100, the drop in the Dollar Index is close to its limit,” said Teppei Ino, an analyst at Bank of Tokyo. “A rebound is expected.”

Williams %R, developed by the trader Larry Williams, calculates the difference between a security’s most recent closing price and its highest high price, relative to its price range over a given time period.

The 14-day relative strength index for the Dollar Index dropped to 23.51, the lowest level since Oct. 14 and below the level of 30 that signals an asset may be due for a rebound.

The dollar has lost 4.6 percent in the past month, extending this year’s decline to 7 percent, according to Bloomberg Correlation-Weighted Currency Indexes, which track the foreign exchange of 10 developed nations. The yen has fallen 3.4 percent in the past month and has lost 7.5 percent this year.

Australia’s dollar appreciated as much as 0.7 percent to $1.0948, the highest since the currency began trading freely in 1983, as traders boosted bets that the central bank will increase borrowing costs.

A Credit Suisse Group AG index based on swaps indicated the Reserve Bank of Australia will raise its 4.75 percent cash target by 25 basis points, or 0.25 percentage point, over the next 12 months, compared with the outlook for a boost of 19 basis points a week earlier.

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