The dollar fell the most in four weeks amid signs that recoveries from Germany to the U.K. are strengthening, narrowing the gap between growth in the world’s largest economy and those of other developed countries.
The euro gained 0.5 percent versus the greenback during the week as industrial production in Germany, Europe’s largest economy, rose in June. The pound rallied against 12 of its 16 most-traded peers as U.K. exports rose to a record. The Labor Department may report Aug. 15 that the consumer-price index increased 0.2 percent in July, according to a Bloomberg survey, as traders weigh whether economic gains will be enough for the Federal Reserve to reduce stimulus measures next month.
“With the dollar, it seems a lot of it is more what’s happening externally,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said Europe’s economic data. As for the Fed, “the market has gotten the message that tapering isn’t tightening,” he said.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, fell 1.2 percent this week in New York to 1,016.93, the biggest drop since the period that ended July 12.
The dollar depreciated 2.8 percent to 96.21 yen, the biggest drop since the week that ended June 14. The U.S. currency rose 0.3 percent to $1.3342 per euro. The 17-nation shared currency fell 2.3 percent to 128.39 yen.
JPMorgan Chase & Co.’s G-7 Volatility Index reached 9.11 percent, the lowest level since July 24 and at almost the lowest level since May 9. The JPMorgan gauge priced at 8.5 percent a year ago.
“Central banks still have this accommodative stance and that tends to keep volatility subdued,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “A large part of it is summer trading that we’ve been seeing in these ranges.”
The Fed has been purchasing $85 billion in Treasuries and mortgages each month in a program known as quantitative easing, while keeping its target interest rate between zero and 0.25 percent, to put downward pressure on borrowing costs.
Chairman Ben S. Bernanke rattled markets in May and June by outlining a plan to end the asset-purchase program, which tends to debase the currency.
The European Central Bank and the Bank of England left their benchmark interest rates unchanged last week at 0.5 percent, as forecast by economists in Bloomberg surveys.
Australia’s dollar rallied the most since December 2011 after amid signs of growth in China, its largest trading partner. The Reserve Bank of Australia damped expectations for further easing after cutting its key interest rate to a record low this week.
China’s “industrial production number was the one that everyone was looking for,” said Chris Weston, chief market strategist at IG Markets Ltd. in Melbourne. “It’s been a good read on the real economy and it blew expectations out of the water. This is good news for Australia.”
Australia’s dollar climbed 3.4 percent to 92.06 U.S. cents this week, the most since the period ended Dec. 2, 2011.
The euro gained against the greenback as reports this week showed services in the 17 nations that share the currency shrank less than initially estimated, German industrial production rebounded and U.K. services and manufacturing production both surpassed economists’ forecasts.
The euro-area’s gross domestic product expanded 0.2 percent in the second quarter, after contracting for the previous six quarters, according to the median estimate in a Bloomberg survey before the report is released on Aug. 14.
Futures traders for a fourth week increased bets that the shared currency will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 6,061 on Aug. 6, compared with 8,504 of bets a week earlier that the European currency would fall against the greenback.
Bets that the Aussie will decline against the U.S. dollar rose to the most on record going back to 1993. So-called net shorts totaled 76,779, compared with net shorts of 72,573 a week earlier, the second week the figure set a record.
The yen gained against all of its major counterparts except the Aussie as Japan’s outstanding public debt including borrowings topped 1 quadrillion yen for the first time. It reached a record 1,008.6 trillion yen ($10.48 trillion) as of June 30, up 1.7 percent from three months earlier, the finance ministry said in Tokyo today.
The world’s heaviest debt burden -- larger than the economies of Germany, France and the U.K. combined -- will weigh on Prime Minister Shinzo Abe when he decides next month whether to implement a two-step plan to double the tax on consumers in a nation with ballooning welfare costs.
“The yen’s strength is probably best ignored,” Kit Juckes, a global strategist at Societe Generale SA in London, said in an e-mail. “Concerns about higher consumption taxes won’t go away.”
In the U.S., the consumer-price index increased 0.5 percent in June, which compared with the median forecast in a Bloomberg survey for a 0.3 percent rise. The core measure, which excludes food and fuel, rose 0.2 percent, matching the May gain and the survey median.
The dollar has slumped 3.7 percent in the past month, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 1 percent and the yen gained 1.8 percent.
“Investors have ratcheted back expectations for the Fed to act in September and moved up the likelihood of action in December,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview.