The dollar rose to the strongest level in 11 years against the euro as the Swiss National Bank’s decision to scrap the franc’s cap steered investors into the world’s top reserve currency.
The euro posted its biggest weekly loss since July 2012 versus the yen as Spiegel magazine reported European Central Bank President Mario Draghi briefed German officials on a sovereign-bond-buying plan. The dollar snapped a five-day decline against Japan’s currency after data showed U.S. consumer confidence rose to highest since 2004. A gauge of foreign-exchange volatility climbed to the highest in more than a year. Brazil’s real led gains among major currencies.
“It’s just part of the dollar story -- the alternatives don’t look attractive,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy, said in a phone interview. “Yesterday cemented in everyone’s mind that the ECB’s going to be aggressive next week.”
The dollar, which represents 63 percent of all known international reserves, surged 0.6 percent to $1.1567 per euro at 5 p.m. in New York and touched $1.1460, the strongest level since November 2003. It gained 1.2 percent to 117.51 yen. The single currency rose 0.6 percent to 135.95 yen, narrowing its loss to 3.1 percent this week.
The franc dropped 1.9 percent to 99.41 centimes per euro after surging to a record 85.172 yesterday. Switzerland’s currency fell 2.3 percent to 85.87 centimes per dollar.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 0.2 percent to 1,139.27 to trim its first weekly loss in more than a month to less than 0.2 percent. It closed at 1,147.54 on Jan. 8, the highest in data going back to 2004.
JPMorgan Chase & Co.’s index of global currency volatility rose to as much as 11.68, the most since June 2013, up from last year’s low of 5.28 percent.
Brazil’s real gained on speculation the ECB will announce a stimulus program next week that will support demand for higher-yielding assets from emerging markets. The real advanced 0.8 percent to 2.6223 per dollar and gained 0.4 percent this week.
Peru’s sol touched a five-year low after the central bank unexpectedly cut borrowing costs for a third time in seven months as lower fuel prices give policy makers room to boost flagging growth. The sol was at 3.0145 per U.S. dollar after falling to 3 yesterday for the first time since 2009.
The naira gained after Nigeria’s central bank sold dollars to stem the currency’s drop to a record low after JPMorgan Chase & Co. said the debt of Africa’s biggest economy may be cut from its local-currency emerging-market indexes. The naira added 0.4 percent to 185.95 per dollar.
The SNB surprised markets at its policy meeting yesterday by abandoning its three-year-old cap of 1.20 per euro on the franc. Policy makers also reduced the interest rate on sight deposits, deepening a cut announced less than a month ago.
“One of the reactions from the SNB decision was they knew the ECB will be embarking on monetary-policy expansion,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said by phone. “The overarching fundamentals of the euro story remain in place to push the euro lower.”
The 19-nation currency posted a fifth weekly decline against the dollar before the region’s policy makers meet on Jan. 22 to discuss introducing new stimulus, including quantitative easing.
The plan that Draghi presented to German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble described quantitative-easing plans under which national central banks would buy bonds issued by their own country, Spiegel said in an article published today, without saying where it got the information.
Greece will be excluded from the program because its bonds don’t fulfill the necessary quality criteria, the magazine said. An ECB spokesman declined to comment on the design of any QE program.
Bloomberg’s dollar index extended gains after the University of Michigan preliminary consumer sentiment index rose to 98.2, the highest since January 2004, from a final reading of 93.6 in December. The median estimate in a Bloomberg survey of 70 economists projected an increase to 94.1.
The dollar has climbed 2 percent in the past month, the best performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the franc’s 15 percent jump. The yen gained 0.9 percent while the euro tumbled 6.5 percent to lead declines.