The dollar touched the lowest level in eight months against a basket of 10 major peers on concern political wrangling over the U.S. debt limit disrupted growth and will prompt the Federal Reserve to delay tapering stimulus.
The greenback had its biggest weekly drop in a month versus the euro after a deal in Congress this week ended a government shutdown and averted a potential default. Australia’s dollar and South Korea’s won gained as demand for higher-yielding assets rose amid data showing China’s economic growth quickened and a survey that forecast the Fed will delay slowing bond purchases until March. Carry trades rebounded amid lower volatility.
“You have this disruption, and it looks like there’ll be no Fed tapering this quarter,” Greg Anderson, New York-based head of global foreign-exchange strategy at Bank of Montreal, said in a phone interview. While the euro rallied versus the dollar over the past two days, “it’s Friday, looks like we ran out of steam.”
The Bloomberg U.S. Dollar Index sank to 1,000.70, the lowest since Feb. 13, before trading little changed at 1,002.73 at 5 p.m. New York time. The gauge lost 1 percent this week, the biggest decline since the five days ended Sept. 20.
The dollar slipped 0.1 percent to $1.3687 per euro after depreciating earlier to $1.3704, the weakest level since Feb. 1. It dropped 1 percent this week, also the most since Sept. 20. The U.S. currency declined 0.2 percent to 97.72 yen. The euro traded at 133.79 yen after earlier gaining to 134.19, the strongest since Sept. 23.-
The Australian dollar extended a weekly gain after China’s National Bureau of Statistics said gross domestic product expanded at a faster pace for the first time in three quarters, quickening 7.8 percent in the three months through September from a year earlier. China is the South Pacific nation’s biggest trade partner.
The Aussie strengthened 0.4 percent to 96.77 U.S. cents and reached 96.78 cents, the highest since June 4. It gained 2.2 percent this week, the most since the five days ended Sept. 6.
China’s yuan was little changed at 6.0968 per dollar after reaching 6.0915, the strongest since the government unified the official and market exchange rates at the end of 1993.
South Korea’s won led Asian currencies in a third weekly gain on optimism the Fed will delay any reduction in stimulus.
“The removal of the U.S. default risk added to improving risk sentiment,” said Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo. Speculation the Fed “will not rush to reduce stimulus already gave some underlying support to emerging-market assets,” he said.
The won appreciated 0.3 percent to 1,060.84 per dollar, according to data compiled by Bloomberg. It touched 1,060.32, the strongest level since Jan. 21. The Bloomberg-JPMorgan Asia Dollar Index rose 0.4 percent.
The last-minute deal reached by U.S. lawmakers this week extended the nation’s borrowing authority to Feb. 7, from yesterday, and will fund the government through Jan. 15.
The U.S. central bank buys $85 billion of bonds a month to put pressure on long-term borrowing rates and spur growth. The purchases tend to debase the dollar. Fed policy makers unexpectedly refrained from slowing the purchases last month, saying they wanted more evidence of an economic recovery.
The Fed will delay the first cut to its buying until March, according to the median estimate of 40 economists surveyed by Bloomberg Oct. 17-18. A poll last month forecast the first reduction would be in December.
“The dollar will stay weak until at least when it’s more obvious the Fed’s going to start tapering,” Paul Robson, senior currency strategist at Royal Bank of Scotland Group Plc in London, said in a phone interview. “We think it’s going to be in March, so it’s still some way off.”
Carry trades, in which investors borrow in countries with low interest rates and use the proceeds to invest in those with higher rates, are making investors the most money in more than a year amid bets the Fed will postpone slowing its bond-buying.
Deutsche Bank AG’s G-10 FX Carry Basket index has gained 4.7 percent from Aug. 30 through yesterday, poised for its biggest two-month gain since rising 4.8 percent from June to July 2012. Confidence in trades has also been supported by the lowest volatility in more than nine months.
JPMorgan Chase & Co.’s Global FX Volatility Index reached 7.73 percent, the least since Jan. 9. The average this year is 9.33 percent.
The dollar slid 3.8 percent in the past three months, the worst performer in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 0.9 percent, while the yen dropped 0.8 percent.
Trading in over-the-counter foreign-exchange options totaled $48 billion, versus $48 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 euro-dollar exchange rate amounted to $10.6 billion, the largest share of trades at 22 percent. Options on the dollar-yen rate totaled $8.4 billion, or 18 percent.
Euro-dollar options trading was 216 percent more than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 27 percent more than average.