The dollar rose against most major peers after Federal Reserve Chairman Ben S. Bernanke said the central bank may taper monthly bond purchases at its next few meetings if it’s confident of sustained gains in the economy.
The greenback fell earlier to a one-week low versus the euro as Bernanke told Congress the U.S. economy remains hampered by high unemployment and government spending cuts, and tightening policy too soon would endanger the recovery. The franc fell to a two-year low versus the euro after Swiss National Bank President Thomas Jordan said an adjustment of the currency’s cap was possible.
“As soon as his conversation shifted toward the timing of a tapering, effectively of a dial-down in purchases,” the dollar began to rally, Alan Ruskin, the New York-based global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG, said in a telephone interview. “We’re notching up another notable day where the dollar is up against everything, and it’s giving you that almost universal strong-dollar story.”
The U.S. currency gained 0.4 percent to $1.2858 per euro at 5 p.m. in New York after falling earlier to $1.2998, the weakest level since May 14. The yen declined 0.6 percent to 103.16 per dollar and touched 103.74, a level not seen since October 2008. Against the euro, the Japanese currency dropped as much as 1.2 percent to 133.80, the least since January 2010, before trading 0.3 percent lower at 132.63.
The dollar remained higher versus the euro even after minutes released by the Fed of its last policy meeting showed many officials said more labor-market progress was needed before they slow asset purchases.
“It’s definitely dovish, it’s just that the market doesn’t believe it,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “The market is more bullish on the U.S. economy than the Fed actually is, and the market is trading it. We’re seeing an interesting divergence.”
Trading in over-the-counter foreign-exchange options totaled $54 billion, compared with $38 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $16 billion, the largest share of trades at 29 percent. Euro-dollar options were the second most-actively traded, at $7.1 billion, or 13 percent.
Euro-dollar options trading was 56 percent above the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 75 percent above average.
The Swiss franc weakened versus most major peers after central-bank President Jordan said a shift of the 1.20-per-euro cap on the currency and negative interest rates are among measures it may take to prevent a tightening of monetary conditions.
The currency declined 0.5 percent to 1.2581 per euro and reached 1.2650, the weakest level since May 2011. The franc dropped 0.8 percent to 97.83 centimes per dollar and touched 98.39, the least since August.
Sterling declined to a one-month low against the euro after data showed U.K. retail sales unexpectedly dropped last month and minutes of the Bank of England’s May 8-9 meeting showed Governor Mervyn King was defeated for a fourth month in his bid to expand stimulus.
The pound fell 0.3 percent to 85.45 pence per euro after depreciating to 85.90 pence, the weakest since April 22. The U.K. currency declined 0.7 percent to $1.5050 and touched $1.5020, the weakest since March 14.
Australia’s currency lost 1.1 percent to 96.99 U.S. cents after a gauge of consumer confidence slumped by the most in 17 months. The Aussie reached 96.62 cents, the least since June.
The yen slid earlier against most major counterparts after the Bank of Japan affirmed a plan to double the monetary base over two years.
BOJ Governor Haruhiko Kuroda told reporters in Tokyo the central bank will conduct its debt purchases in a flexible manner, and that recent volatility in government securities isn’t yet affecting the economy. The central bank said it will expand the supply of money in the Japanese economy by 60 trillion yen ($582 billion) to 70 trillion yen a year, as pledged in April.
A government report showed Japan’s trade deficit swelled more in April than analysts forecast, expanding to 879.9 billion yen, the widest in three months.
“The yen appears to have got its first push lower from disappointing trade data that showed the weaker-yen trend still has some way to go,” said Eimear Daly, a currency analyst at Monex Europe Ltd. in London.
The Japanese currency has tumbled 13 percent this year versus nine developed-market peers tracked by Bloomberg Correlation-Weighted Indexes, the biggest loser. The euro advanced 2.6 percent, and the dollar climbed 5.5 percent.
Treasury yields rose as Bernanke said the central bank could “step down” asset buying in the next few meetings and is continuing to assess prospects for the job market.
“If we see continued improvement, and we have confidence that that is going to be sustained, in the next few meetings we could take a step down in our pace of purchases,” the Fed chief said.
The policy-setting Federal Open Market Committee said May 1 after a two-day meeting the central bank may quicken or slow monthly purchases of $85 billion of Treasury and mortgage securities in response to labor-market and inflation changes.
“Most observed that the outlook for the labor market had shown progress,” according to meeting minutes released today. “But many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.”