The dollar gained against most of its major counterparts as stronger U.S. economic data reduced bets the Federal Reserve would add to monetary stimulus, bolstering demand for the currency.
Higher-yielding currencies including Norway’s krone and the euro erased earlier losses against the dollar as stocks gained, amid increased demand for risk. The Australian and New Zealand dollars declined as China’s central bank weakened its daily fixing for the yuan after the nation had its biggest trade deficit in at least 22 years. The Dollar Index reached a six-week high after data last week showed U.S. employers boosted payrolls in February more than economists forecast.
“In the wake of those strong payrolls Friday, the market is left in a holding pattern ahead of retail sales and the U.S. Federal Open Market Committee meeting,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The dollar’s been driven higher by better news here.”
The greenback declined 0.2 percent to $1.3155 per euro as of 5:01 p.m. New York time. The currency slid 0.3 percent to 82.23 yen, after touching 82.65 at the end of last week, the highest since April 27. The krone added 0.4 percent to 5.6767 per dollar after weakening as much as 0.4 percent.
The 17-nation euro pared losses against the yen before European finance ministers meet in Brussels to review a second aid package for Greece. The euro declined 0.1 percent to 108.18 yen.
The Dow Jones Industrial Average strengthened 0.3 percent and the Standard & Poor’s 500 Index was little changed.
The Brazilian real weakened the most among the major currencies, slumping as much as 2.3 percent to 1.8328 against the dollar, the weakest level since Jan. 9.
The nation extended a 6 percent tax on foreign loans and bonds issued abroad by local companies to include lending with a duration as long as five years, the third measure taken this month to weaken the real. President Dilma Rousseff pledged last week to take all necessary measures to protect Latin America’s biggest economy from what she dubbed a “monetary tsunami” unleashed by rich nations seeking to devalue their currencies.
The currency needs to lose 20 percent to reach a “sustainable level”, Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an interview in London today.
“Brazil’s biggest cyclical challenge is to get rid of the strength of the real,” O’Neill said.
The U.S. currency was stronger against 10 of its 16 major peers tracked by Bloomberg. The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, lost 0.2 percent to 79.867 after earlier reaching 80.132, the highest level since Jan. 25.
The yuan dropped after China reported on March 10 a February trade shortfall of $31.5 billion, the largest trade deficit since at least 1989. The People’s Bank of China said in a press statement today that it will use interest rates and exchange rates to manage the economy as Europe’s debt crisis damps global demand.
The reference rate for the yuan was set 0.33 percent lower at 6.3282 per dollar. The currency can move 0.5 percent either side of the fixing. The yuan declined as much as 0.26 percent to 6.3273 per dollar, before trading at 6.3265, according to the China Foreign Exchange Trade System. That was its biggest loss since Jan. 20, based on closing prices.
Australia’s dollar weakened 0.6 percent to $1.0516 and touched the least since Jan. 25. New Zealand’s dollar declined 0.4 percent to 81.80 U.S. cents.
Retail sales in the U.S. increased 1.1 percent in February, the most in five months, according to the median estimate of 80 economists in a Bloomberg News survey before Commerce Department figures due tomorrow.
That would follow data on March 9 that showed nonfarm payrolls increased by 227,000 in February after rising by a revised 284,000 the prior month. The unemployment rate held at a three-year low of 8.3 percent.
“The dollar no longer strengthens only in the presence of risk aversion and now stronger U.S. economic data is just as likely to do the trick,” Chris Walker, a currency strategist at UBS AG in London, wrote in an e-mailed note. “This change in character paves the way for further dollar gains over the coming months as market expectations for further Fed easing recede.”
The Dollar Index fell 0.4 percent on Jan. 25, when Fed Chairman Ben S. Bernanke said that policy makers were considering additional asset purchases to boost growth. The Federal Open Market Committee, which sets U.S. monetary policy, meets tomorrow.
Foreign-exchange trading has surged as central banks including the Fed flooded markets with cash to combat the global financial crisis. Currency trading may have risen to a record $5 trillion a day in September, surpassing the peak reached before Lehman Brothers Holdings Inc.’s collapse in 2008, according to the Bank for International Settlements.
The euro held a two-week decline against the dollar before ministers from the region’s 17 nations gather in Brussels today to sign off on a 130 billion-euro ($171 billion) second package for Greece after bondholders agreed last week to take a loss on the country’s debt.
The world’s biggest banks are less pessimistic about the euro as the European Central Bank provides unlimited cash to the region’s financial system, Germany may avoid recession and Greece looks to complete the biggest sovereign-debt restructuring in history.
Strategists at Bank of America Corp. and Morgan Stanley raised their estimates for the euro this month, as the median estimates of more than 50 strategists surveyed by Bloomberg increased for the second and third quarters. The 17-nation currency is up about 1.3 percent from an almost 10-year low on Jan. 16 against nine developed-market peers.