Dollar Weakens Before Economic Data That May Sway Fed Stimulus

The dollar fell against the majority of its 16 most-traded peers before U.S. economic data that may provide more direction about when the Federal Reserve will begin to taper its monetary stimulus.

The Dollar Index touched its lowest point in almost four months before a report tomorrow forecast to show retail sales grew 0.4 percent in May, according to a Bloomberg survey. Sentiment has grown that a strengthening economy will prompt the U.S. central bank to taper bond buying, which risks devaluing the currency. The yen fell earlier on speculation the biggest gain in three years yesterday was too rapid amid forecasts for further stimulus from the Bank of Japan.

“You’ve had a huge bounce in dollar-yen, an enormous buildup of speculative positions on long dollar-yen and you’re now seeing a bigger correction,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. by phone from New York. “The bounce in the euro, the kiwi, the Aussie in the last few days seems to have coincided with yen strength, so you might argue that whatever the catalyst for the yen strengthening, it’s triggering dollar selling elsewhere.”

The dollar fell 0.2 decline versus the euro to $1.3337 per euro at 5 p.m. in New York. The 17-nation currency lost 0.2 percent to 128.06 per yen. The greenback was little changed at 96.02 yen after gaining as much as 1 percent.

Dollar Measure

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major trading partners, lost 0.2 percent to 80.957, reaching the lowest level on a closing basis since Feb. 19. The measure traded below its 200-day moving average for the first time since Feb. 20.

The weakness can be traced to strength in the euro, which is trading at a key technical level that may signal more gains for the common currency, according to Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co.

The euro is trading at its 61.8 percent Fibonacci retracement of the February highs, he said. The next level would be the 76.4 percent Fibonacci retracement level at $1.3483.

“At this point, I would say it’s a random guess whether it breaks it or not, Chandler said by phone from New York.

JPMorgan Chase & Co.’s Global FX Volatility Index fell to 10.57 percent after rising to 10.59 percent yesterday, the highest since June 2012.

Rand Gains

South Africa’s rand weakened after the country’s worst bond selloff in four years. The currency fell 0.4 percent to 10.1133 per dollar.

Brazil’s real dropped 1.1 percent to 2.1564 per dollar on speculation the central bank’s four swap auctions this week won’t be sufficient to stop the currency’s decline. The central bank’s sale of currency swaps yesterday in two auctions followed the sale of $2.1 billion of the swaps the day before.

India’s rupee rebounded a day after falling to a record low versus the dollar as the government said it is considering options to spur inflows and Fitch Ratings revised the nation’s credit-rating outlook to stable from negative. The currency appreciated 1 percent to 57.7900, after reaching its biggest gain on a closing basis since Jan. 18.

One-year implied volatility for the dollar-yen climbed to 13.16 percent, its highest level since August 2011.

Central Bank

The BOJ refrained from adding stimulus or expanding its toolkit for tackling volatility in bonds after a policy meeting yesterday. Governor Haruhiko Kuroda said the central bank would discuss longer fund operations when needed to calm markets.

Japanese machine orders dropped 8.8 percent in April from March after rising for the previous two months, the Cabinet office said in Tokyo. Economists surveyed by Bloomberg News forecast a decline of 8.1 percent.

The yen has slumped 7.9 percent this year, the worst performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 4.3 percent and the dollar strengthened 3.1 percent.

Australia’s dollar snapped a three-day slide versus the U.S. currency as a technical indicator signaled recent selling was overdone. The relative-strength index versus the greenback fell to 30.7 yesterday, near the 30 level that some traders see as a sign the price has fallen too rapidly and is poised to change direction.

The Aussie gained 0.6 percent to 94.84 U.S. cents after falling to 93.26 yesterday, the weakest since September 2010. New Zealand’s dollar rose the most out of the greenback’s 16 most-traded counterparts, appreciating 1.5 percent to 79.90 U.S. cents.

Fed Chairman Ben S. Bernanke said May 22 the central bank could reduce its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage bonds if the U.S. employment outlook shows a sustainable improvement. Policy makers have pledged to keep interest rates at almost zero as long as joblessness is above 6.5 percent and inflation is no more than 2.5 percent.

The central bank’s next rate decision will be June 19.

Before it's here, it's on the Bloomberg Terminal.