The dollar fell to an eight-month low against a basket of 10 major currencies on bets disruption from the U.S. debt-ceiling debate will damp growth and prompt the Federal Reserve to postpone tapering its stimulus program.
The greenback lost the most in a month versus the euro as Fed Bank of Dallas President Richard Fisher said fiscal discord has undermined the case for slowing the central bank’s bond purchases, which tend to debase the dollar. A 16-day government shutdown ended after Congress approved a deal yesterday extending funding and debt-limit deadlines into next year. The pound climbed after U.K. retail sales rose more than forecast.
“Tapering is looking less and less likely,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “In the next few months, there’s a window of opportunity for currencies and risk assets to rally across the board against the dollar.”
The Bloomberg U.S. Dollar Index slumped 0.9 percent to 1,002.65 at 5 p.m. New York time and reached 1,002.41, the least since Feb. 14. It breached the lower of the 20-day Bollinger bands, a technical indicator, signaling prices may have fallen too far, too fast.
The dollar sank 1 percent to $1.3675 per euro and fell as much as 1.1 percent, the biggest intraday drop since Sept. 18. It touched $1.3682, the weakest level since Feb. 1. The U.S. currency slid 0.9 percent to 97.91 yen after gaining earlier to 99.01, the strongest since Sept. 27. The euro rose 0.2 percent to 133.90 yen.
“The market is getting grumpy with the dollar,” David Bloom, head of global currency strategy at HSBC Holdings Plc in London, said in an interview on Bloomberg Television’s “The Pulse” with Francine Lacqua and Guy Johnson. “It is going through the throes of thinking, can the Fed taper this year? It’s starting to look less likely.”
Sterling rallied the most in a month against the dollar after the U.K. Office for National Statistics said retail sales including fuel increased 0.6 percent from August, when they declined 0.8 percent. The median forecast in a Bloomberg survey was for a 0.4 percent gain.
“There’s a lot of bullish sentiment toward the pound,” said Kathleen Brooks, European research director at Forex.com in London. “It’s being driven by a weak tone in the dollar combined with the U.K. data.”
The pound strengthened as much as 1.4 percent, the biggest intraday gain since Sept. 18, to $1.6172 before trading at $1.6165, up 1.3 percent.
President Barack Obama signed into law the measure to fund the U.S. government through Jan. 15, 2014, and extend its borrowing authority until Feb. 7, setting up another round of confrontations. The accord was reached a day after Fitch Ratings said it may cut the U.S. AAA credit grade, citing the inability to raise the $16.7 trillion debt ceiling in a timely manner.
“It wasn’t a good deal for the dollar,” Simon Smith, chief economist at FxPro Group Ltd. in London, said in a phone interview. “Obviously the uncertainties of the debt ceiling and government shutdown are only delayed. It’s going to be dollar-negative in the next three months.”
The Fed buys $85 billion of bonds a month to put pressure on long-term borrowing rates and spur growth. Policy makers unexpectedly refrained from reducing the purchases last month, saying they wanted more evidence of an economic recovery.
Talk of cutting bond purchases has “been swamped by fiscal shenanigans,” Fisher of the Dallas Fed told reporters today after a speech to the Economic Club of New York. Fisher, who has consistently called for reducing record stimulus, will have a vote on monetary policy next year.
“With all the silliness going on here, that’s pushed tapering out until at least the first quarter,” Ric Deverell, the New York-based global head of foreign-exchange and commodities at Credit Suisse Group AG, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene and Michael McKee. “That probably means you don’t get a clear direction from the dollar until at least 2014.”
The greenback lost 1.5 percent in the past month, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-country currencies. The euro gained 1.1 percent.
Europe’s shared currency may be headed for a decline against the dollar. The euro’s 14-day relative-strength index rose to 68, approaching the 70 threshold that signals a change in direction may be imminent.
South Korea’s won reached a nine-month high versus the dollar, even as an official said the government is monitoring price moves closely.
The finance ministry is watching for “herd behavior” and an increase in volatility, Kim Seong Wook, a director at the ministry’s Foreign Exchange Market Division said by phone.
The won gained 0.2 percent to close at 1,063.58 per dollar in Seoul after reaching 1,063.10, the strongest since Jan. 23.
Trading in over-the-counter foreign-exchange options totaled $48 billion, from $49 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 $10.3 billion, the largest share of trades at 22 percent. Options on the euro-dollar rate totaled $9.4 billion, or 20 percent.
Greenback-yen options trading was 58 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 80 percent above average.