Dollar Weakens From 3-Year High; Euro Rises Amid Risk Appetite

The Dollar Index fell from a three-year high amid speculation it climbed too far, too fast after a report last week showing stronger-than-forecast U.S. job growth fueled bets the Federal Reserve will soon slow its stimulus.

The euro advanced for the first time in three days versus the dollar as risk appetite increased and European and U.S. stocks rose. The dollar declined versus most major peers. Fed Chairman Ben S. Bernanke is scheduled to speak on economic policy on July 10, the same day the central bank will release minutes of its June policy meeting.

“It’s a reversal of the strong dollar trend that came last Friday,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “The market may have gone too far to the extreme in terms of pricing in the tempering of asset purchases.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trade partners, fell 0.3 percent to 84.207 at 5 p.m. New York time after reaching 84.588 earlier, the highest since July 6, 2010.

The euro advanced 0.3 percent to $1.2870 and gained 0.1 percent to 129.95 yen. The dollar lost 0.2 percent to 100.97 yen after gaining earlier to 101.53, the strongest since May 30.

A sustained break by the Dollar Index above a resistance level at 84.50 would clear the way for a rise to 84.90 to 84.95, Niall O’Connor, a New York-based technical analyst at JPMorgan Chase & Co., wrote in a client note. An increase beyond that may mean a rally to 86.07 for the first time since July 1, 2010, confirming a “deeper rally phase” for the currency, he wrote. Resistance is a chart area where sell orders may be clustered.

Lower Volatility

JPMorgan’s Group of Seven Volatility Index, based on currency option premiums, fell to 10.66 percent, the lowest since June 19. The 2013 average is 9.5 percent. The gauge reached 11.96 percent June 24, the highest since January 2012.

Norway’s krone rebounded versus all of its 16 most-traded counterparts after sliding July 5 to its weakest level since September 2010. It appreciated as much as 1.8 percent, the biggest intraday gain since May 8, to 6.14 per dollar before trading at 6.1435. The krone rallied as much as 1.4 percent to 7.9075 per euro, its largest intraday jump since September 2011.

“The selling of the krone has been overdone, so in the near term and next three months, we expect a correction toward more moderate levels,” Ole Kjennerud, an economist at DNB ASA, said from Oslo by telephone.

Rupee Drops

The rupee weakened to a record after the U.S. payrolls report last week increased the relative attraction of American assets. The Indian currency fell 0.6 percent to 60.6150 per dollar and reached 61.2125, surpassing the previous record of 60.7650 set on June 26.

“The data could lead to outflows from all emerging markets,” said Vikas Babu, a trader at state-run Andhra Bank in Mumbai. “The central bank could come in and intervene to protect key levels.”

Any dollar sales by the Reserve Bank of India will be aimed at reducing market volatility, rather than supporting the exchange rate as the rupee’s slide is in line with losses in other currencies, according to Barclays Plc.

Bernanke will speak in Boston this week after he said following the Fed’s June 18-19 meeting policy makers may reduce bond purchases this year and end them in mid-2014 if economic growth meets estimates. Fed officials forecast expansion of as much as 2.6 percent this year and 3.5 percent in 2014.

U.S. payrolls increased by 195,000 in June for a second consecutive month, the Labor Department reported on July 5.

‘Protracted Exit’

The Fed is buying $85 billion of Treasuries and mortgage bonds each month to put downward pressure on borrowing costs in the third round of its quantitative-easing stimulus strategy. The purchases tend to debase the currency.

“The Federal Reserve has begun a protracted exit from the extraordinary monetary policy,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, wrote today in a client note. It “has signaled that, barring new signs of weakness in the economy, it will likely slow its asset purchases this year and conclude them next year.”

The dollar strengthened 7 percent in the past six months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5.2 percent, while the yen tumbled 8.3 percent, the biggest loser.

Greek Talks

The euro rose for the first time in three days against the dollar as the region’s finance ministers met in Brussels. European governments agreed to release 3 billion euros ($3.9 billion) for Greece, seeking to buy enough financial calm to prevent another debt-crisis showdown until after Germany’s elections in September.

In Portugal, Prime Minister Pedro Passos Coelho proposed that Paulo Portas, leader of the junior party in the governing coalition, become vice premier. The appointment helps cement a deal to hold the coalition together.

Trading in over-the-counter foreign-exchange options totaled $27.2 billion, compared with $29 billion on July 5, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro-dollar exchange rate amounted to $4.7 billion, the largest share of trades at 17.3 percent. Dollar-yen options also totaled $4.7 billion, or 17.1 percent.

Dollar-yen options trading was 37 percent below the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 48 percent above average.

The Stoxx Europe 600 Index climbed 1.4 percent, and the Standard & Poor’s 500 Index rose 0.5 percent.

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