The dollar rose from the lowest level in a week as investors wagered the Federal Reserve is still moving toward reducing its bond buying after chairman-nominee Janet Yellen said it “will not continue indefinitely.”
The yen weakened beyond 100 per dollar for the first time since September after a government report showed economic growth slowed, adding to the case for the Bank of Japan to boost stimulus. Emerging-market currencies rose on bets the Fed will continue its asset purchasing. Yellen said in Washington testimony she is committed to promoting a strong recovery and will ensure monetary stimulus isn’t removed too soon.
Currency investors “are not completely convinced that the Fed will be able to follow through on its dovish inclinations,” Steven Englander, global head of Group of 10 currency strategy at Citigroup Inc., wrote in an e-mail. “There is a small case for the dollar within G3 even if tapering is in the slow lane, and a big case if it turns out that data and asset-market conditions force the Fed to slow the pace of buying.” The G3 refers to the dollar, yen and euro.
The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major counterparts, was little changed at 1,018.82 at 5 p.m. in New York after dropping to 1,015.83, the lowest since Nov. 7. It fell 0.4 percent yesterday.
The yen fell 0.8 percent to 100.01 per dollar after touching 100.15, the weakest level since Sept. 11. Japan’s currency declined 0.6 percent to 134.61 per euro. The euro slid 0.2 percent to $1.3461 after declining as much as 0.5 percent.
South Korea’s won and Malaysia’s ringgit rose the most in three weeks after Yellen’s comments damped speculation funds will flow out of emerging markets.
“Demand for riskier assets may come back,” Son Eun Jeong, a currency analyst at Woori Futures Co. in Seoul, wrote in a research note.
South Korea’s currency appreciated 0.4 percent to close at 1,067.91 per dollar in Seoul, the biggest gain since Oct. 23.
The ringgit strengthened 0.2 percent to 3.2045 per dollar, the steepest increase since Oct. 28, according to data compiled by Bloomberg. It earlier touched 3.1861, the highest level since Nov. 11.
Australia’s dollar reversed earlier gains on speculation the central bank will cut interest rates even after a potential delay in the Fed’s plan to slow asset purchases.
The Aussie fell 0.5 percent to 93.16 U.S. cents from 93.60 yesterday, when it added 0.6 percent.
Yellen said the central bank’s key interest rate, now at a record zero to 0.25 percent, would remain low even after it starts to pare back on bond purchases.
“I consider it imperative that we do what we can to promote a very strong recovery,” Yellen said in response to a question during testimony today to the Senate Banking Committee in Washington. “It’s important not to remove support, especially when the recovery is fragile and the tools available to monetary policy, should the economy falter, are limited given that short-term interest rates are at zero.”
The Federal Open Market Committee she is poised to lead is considering whether to begin slowing its $85 billion monthly bond-purchase program, which is pushing the Fed’s assets toward a record $4 trillion. The Fed has kept its target interest rate near zero since December 2008.
Yellen “has expressed a clear conviction in the merit of stimulative monetary policy,” Jens Nordvig, managing director of currency research at Nomura Holdings Inc., Japan’s biggest brokerage, wrote in an e-mail. “Hence, it is a comforting signal for the market, that tapering is not about to happen very soon, and risk assets are supported, that is the main move.”
The greenback weakened earlier as the U.S. trade deficit widened, with the gap in goods and services trade increasing 8 percent to $41.8 billion from a revised $38.7 billion in August, the Commerce Department reported today in Washington. The median forecast in a Bloomberg survey of 72 economists called for a $39 billion deficit.
Jobless claims in the week ended Nov. 9 declined 2,000 to 339,000 from a revised 341,000 the week before that was higher than initially reported, the Labor Department said. The median forecast of 51 economists surveyed by Bloomberg called for a drop to 330,000.
The yen fell versus all of its major peers as Finance Minister Taro Aso said the nation must retain intervention as a policy option.
Japan’s gross domestic product growth slowed to an annualized 1.9 percent in the July-September period from 3.8 percent in the second quarter, the Cabinet Office said in Tokyo. The median estimate of economists surveyed by Bloomberg News was for a 1.7 percent increase.
“Weaker Japanese data suggests we’re likely to get more policy action, and that will put the yen under pressure,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London.
The European Union’s statistics office said the economy expanded 0.1 percent after growing 0.3 percent in the previous three months.
The euro has gained 6.3 percent this year, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar advanced 4 percent and the yen slumped 11 percent.