The Dollar Index advanced from an almost one-month low amid speculation faster U.S. economic growth will bolster investors’ risk appetite and increase demand for higher-yielding assets.
Japan’s currency depreciated to more than 100 per dollar after climbing to the strongest in three weeks yesterday. Australia’s dollar declined versus all of its 16 major counterparts after the nation’s central bank said the inflation outlook provided some scope for further monetary easing. April’s U.S. trade deficit widened, reflecting a rebound in imports that point to gains in spending, after a report yesterday showed the nation’s manufacturing shrank last month.
“I don’t think one weaker U.S. number changed a lot of minds here about the overall stronger dollar story, and in particular the stronger dollar-yen view,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview.
The dollar gained 0.5 percent to 100.03 per yen at 5 p.m. New York time. Japan’s currency appreciated to 98.87 yesterday, the strongest since May 9. The yen declined 0.5 percent to 130.84 per euro. The dollar was little changed at $1.3081 per euro.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six U.S. trading partners, rose 0.1 percent to 82.769, after adding as much as 0.4 percent. The gauge depreciated 0.9 percent yesterday, touching the lowest level since May 9.
Trading in over-the-counter foreign-exchange options totaled $31 billion, compared with $37 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 was $6.9 billion, the largest share of trades at 22 percent. Dollar-Chinese yuan options were the second most-actively traded, at $6.6 billion, or 21 percent.
Yen-dollar options trading was 12 percent less than the average for the past five Tuesdays at a similar time in the day. Dollar-yuan options trading was 106 percent more than average.
Deutsche Bank AG’s G-10 FX Carry Basket index fell 3.3 percent last month, the biggest decline since May 2012, reducing its gain this year to 1.1 percent.
“With growth slowing globally, there are concerns about these higher-yielding currencies, commodity-oriented currencies,” Robert Sinche, the global strategist at Pierpont Securities in Stamford, Connecticut, said in an interview on Bloomberg Television’s “Lunch Money” with Julie Hyman. “Its best days are behind it and it’s going to be more of a trading market, rather than just a long-term positioning market.”
While Federal Reserve Chairman Ben S. Bernanke made the dollar ideal for funding the carry trade -- borrowing in low-interest-rate currencies to buy higher-yielding assets -- by keeping interest rates at a record low and buying bonds, his signal last month that extraordinary stimulus could be pared if there’s a sustained economic improvement pushed up borrowing costs and volatility.
The widening of the U.S. trade deficit in April to $40.3 billion from a more than three-year low reflected a rebound in imports of consumer goods and business equipment that eases concern about the degree of slowing in economic growth.
The MSCI Asia Pacific Index of shares gained 0.9 percent and the Stoxx Europe 600 Index advanced 0.3 percent. The Standard & Poor’s 500 Index gained as much as 0.4 percent before dropping 0.6 percent.
“If U.S. equities do well, more investors want to hold U.S. assets,” Geoffrey Yu, a senior currency strategist at UBS AG in London, said in a phone interview. “In a positive-risk environment right now, clearly the dollar is responding favorably.”
Japan’s currency weakened against the majority of its most-traded peers. Wages in the country rose by the most in a year in April, in a gain that supports Prime Minister Shinzo Abe’s campaign to reflate the world’s third-biggest economy after 15 years of falling prices.
“The market is giving back some of its recent moves, with the yen weakening,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The performance of the U.S. economy and Fed policy direction will be important for the yen.”
Japan’s currency will weaken toward 110 per dollar over the next 12 months, Hardman said.
The euro fell as much as 0.3 percent versus the dollar amid reports that Germany has secured French support to delay rules on direct bank aid from the euro area’s firewall fund, calling into question when the tool will be available, according to two European officials.
Euro-area finance ministers had aimed to reach political agreement this month on when and how the European Stability Mechanism could help banks so that the new program is ready next year when common supervision starts within the currency bloc.
“Euro has been on the defensive since headlines broke about ESM,” Daragh Maher, a London-based currency strategist at HSBC Holdings Plc., said in an e-mailed message.
The Aussie weakened as the central bank held its benchmark interest rate at a record-low 2.75 percent.
The exchange rate “remains high considering the decline in export prices that has taken place over the past year and a half,” Reserve Bank of Australia Governor Glenn Stevens said in a statement.
Australia’s dollar fell 1.2 percent to 96.50 U.S. cents after jumping 2.1 percent yesterday.
The Aussie has declined 3.9 percent this year, the second-worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen posted the biggest drop, falling 10.9 percent, while the dollar gained 4.4 percent and the euro added 3.4 percent.