Dollar Declines as U.S. Budget-Deal Optimism Curbs Haven Demand

The dollar fell against most major currencies as optimism U.S. lawmakers will reach agreement on efforts to avoid the so-called fiscal cliff damped demand for safer assets.

The euro rose against all of its 16 most-traded counterparts after Spanish and Italian bonds rallied and global stocks advanced. The U.S. currency gained against the yen amid a report showing the U.S. economy expanded more than previously estimated in the third quarter. Sweden’s krona declined after the economy expanded at a slower pace last quarter.

“People must be getting the sense there is something going on behind the scenes,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “There were a fair number of people that doubted the lame-duck Congress would have the inclination to do anything, but maybe the fact that there seems to be something being done gives people hope.”

The euro advanced 0.2 percent to $1.2980 at 11:07 a.m. New York time to extend its monthly gain to 0.2 percent. The single currency gained 0.3 percent to 106.61 yen, advancing its November rise to 3.1 percent. The yen fell 0.1 percent to 82.14 per dollar, increasing its decline this month to 2.9 percent.

Krona, Ruble

The krona extended its weekly decline as Statistics Sweden said GDP expanded a seasonally adjusted 0.5 percent, compared with growth of 0.7 percent the prior quarter. Economists surveyed by Bloomberg News forecast growth of 0.2 percent. Annual growth slowed to 0.7 percent from 1.3 percent, the agency said.

Sweden’s currency dropped 0.2 percent to 6.6647 per dollar and is down 0.7 percent this week.

Russia’s ruble appreciated the most in six weeks as crude oil, the nation’s main export earner, climbed for the first time in four days on optimism the U.S. fiscal cliff will be avoided.

The currency rose 0.9 percent against the dollar to 30.8582 after touching 30.8011, the strongest level since Oct. 19. Oil increased 2.1 percent to $88.30 per barrel in New York.

Spain’s 10-year bond yield dropped to the lowest level in eight months while similar-maturity Italian yields declined to the least in two years.

The euro has fallen 2 percent this year, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-nation currencies. The dollar dropped 2.2 percent and the yen slid 9 percent to lead all decliners.

Stocks, Euro

The 120-day rolling correlation between the MSCI World Index of stocks and the euro’s performance versus the dollar has strengthened to 0.7 from 0.5 in June. A reading of 1 signals two assets move in lockstep.

The MSCI Index rose 0.5 percent, with the Standard & Poor’s 500 Index climbing 0.4 percent.

Further gains in the shared currency may be limited as the seven-day relative strength index versus the dollar rose to 74. A reading higher than 70 indicates a currency’s rally may have been too far, too fast and may be do for a correction.

The Dollar Index fell for a second day as U.S. gross domestic product grew at a 2.7 percent annual rate, up from a 2 percent prior estimate, revised figures from the Commerce Department showed today in Washington. The median forecast of 82 economists surveyed by Bloomberg called for a 2.8 percent gain. Household purchases climbed at a 1.4 percent rate, the least in more than a year and down from a previously reported 2 percent rate, and income gains were also cut.

The index declined 0.2 percent to 80.178. The gauge, which tracks the greenback versus the currencies of six major trading partners, is weighted 57.6 percent to movements in the euro.

Expect ‘Resolution’

“We’re seeing investors look to put on risk and sell the dollar,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “We expect there will be a resolution to the fiscal cliff over the next couple of weeks.”

BNP Paribas forecast the euro will rise to $1.33 by year-end, Sneyd said.

Three out of four global investors expect a short-term agreement to avert the fiscal cliff, more than $600 billion in tax increases and spending cuts set to take effect in January, according to a Bloomberg Global Poll.

Treasury Secretary Timothy F. Geithner meets congressional leaders today as they seek to reach a framework deal by year’s end setting targets for tax-revenue increases and spending reductions.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE