The dollar climbed to a 14-month high on speculation financial markets are underestimating the pace of U.S. interest-rate increases and investors sought a refuge before a vote on Scottish independence this month.
The pound slumped the most since July 2013 against the dollar after a poll said Scottish independence supporters gained on opponents before a Sept. 18 vote. The euro declined after dropping for an eighth week Sept. 5 in the longest losing stretch in its 15-year history, and South Africa’s rand fell to a one-month low. The yen reached the weakest level since 2008 as data added to signs Japan’s economy is losing momentum.
“The Fed papers that came out today suggest the market perhaps has lower expectations” of the rate-increase pace than the central bank does, said Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis. “The dollar is getting strength as probability increases on Scotland independence. The U.K. may run into some economic uncertainties.”
The U.S. currency appreciated 0.4 percent to $1.2895 per euro at 5 p.m. New York time. It touched $1.2882, the strongest level since July 10, 2013. The yen lost as much as 1 percent to 106.09 per dollar, the weakest since October 2008, before trading at 106.03. The yen fell 0.5 percent to 136.72 per euro.
The Bloomberg Dollar Spot Index rose as much as 0.7 percent to 1,045.79, also the highest since July 2013, before trading at 1,045.43.
A measure of foreign-exchange price swings among Group of Seven currencies remained below average. JPMorgan Chase & Co.’s G7 Volatility Index rose to 6.86 percent, the most on a closing basis since April 15 and up from a record-low closing of 5.11 percent July 3. The average over the past year is 7.19 percent.
Low volatility across financial markets may signal investors are underestimating how quickly the Federal Reserve will raise interest rates, according to researchers at the San Francisco Fed.
“Surveys, market expectations, and model estimates show that the public seems to expect a more accommodative policy than Federal Open Market Committee participants,” Jens Christensen, a senior economist, and Simon Kwan, a vice president of financial research, said in a report.
The lack of volatility may reflect investors’ “relative certainty” about interest rates, they wrote.
Fed policy makers, who meet next week, are on track to end a bond-buying stimulus program in October. Futures trading showed a 56 percent chance they will raise the benchmark interest-rate target to at least 0.5 percent by July 2015. The likelihood was 52 percent at the end of August.
The Fed has held the rate in a range of zero to 0.25 percent since 2008 to support the economy.
The euro dropped last week as the European Central Bank unexpectedly cut interest rates to record lows Sept. 4 and ECB President Mario Draghi said it will buy asset-backed securities as it tries to spur a slumping economy.
“People are still looking for an excuse to sell the euro,” said Mark McCormick, a foreign-exchange strategist in New York at Credit Agricole SA. “Further moves at this point are really going to require some movement from the Fed in terms of their language, in terms of their statement, in terms of their views on forward guidance.”
The rand slumped 1.1 percent today to 10.8093 per dollar and reached a one-month low of 10.8134 before a report tomorrow that’s forecast to show South Africa posted a wider current account deficit in the second quarter.
Sterling fell the most against the dollar among 31 major counterparts after a poll by YouGov Plc showed the Scottish independence campaign gained a lead for the first time this year before the referendum next week.
A “yes” vote would raise the prospect of a more cautious approach from the Bank of England, which this month kept its key interest rate at a record low.
“We’ve clearly seen markets taking on board that it’s just not a tail risk but a much more significant event risk,” Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce, said by phone from London. “We’re still of the view there likely will be a no vote and the union will be sustained. For those that are brave enough, there will be opportunity to pick up sterling at cheaper levels once the smoke clears.”
The pound fell 1.4 percent to $1.6104 and reached $1.6099, the weakest since Nov. 21. The decline was the biggest since July 2013.
The U.K. currency slumped 2 percent in the past month in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro sank 1.9 percent, and the yen fell 1.7 percent. The dollar rose 2.4 percent.
Japan’s currency fell after the nation’s Cabinet Office said annualized gross domestic product shrank 7.1 percent in the second quarter, versus a Bloomberg survey forecast of 7 percent. Business spending slid 5.1 percent and the adjusted current-account surplus narrowed to 99.3 billion yen ($941 million) in July from 125.6 billion yen the previous month.