Dollar Index at Almost 2-Week High on Flight to Safer AssetsJoseph Ciolli
The Dollar Index traded at almost a two-week high as investors fled higher-yielding currencies in favor of the relative safety of dollar-denominated assets.
The U.S. currency fluctuated versus the euro before U.S. reports tomorrow that economists said will show durable-goods orders gained and house prices increased as the Federal Reserve may reduce monetary stimulus if economic improvement is sustained. The greenback erased a gained against the euro after Dallas Fed President Richard Fisher said investors shouldn’t overreact to the central bank’s plan to slow bond purchases. The Swedish krona slid to a seven-month low versus the dollar.
“People are rotating out of assets that they overreached for as the grab for yield unwinds,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “The dollar will be the beneficiary of people looking to unwind liquidity- or carry-fueled trades.”
The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the U.S. currency against those of six trading partners, rose 0.1 percent to 82.433 at 5 p.m. in New York after climbing to the highest level since June 5.
The dollar was little changed at $1.3120 per euro after earlier appreciating to the strongest level since June 5. The U.S. currency weakened 0.2 percent to 97.73 yen. The yen added 0.2 percent to 128.22 per euro.
Deutsche Bank AG’s G10 FX Carry Basket index fell to 112.25, the lowest level since September. It gained 6.8 percent in 2012 after declining the previous two years as weak economic data in the U.S., Japan and the euro region led to speculation that central banks would keep rates low and inject money to boost growth. With those conditions waning, volatility has increased, which is negative for the carry trade because it depends on predictable interest rates across jurisdictions.
JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, rose to as high as 11.96 percent today, the most since January 2012. The gauge has averaged 8.76 percent in the past year.
Dallas Fed President Fisher, in an interview with the Financial Times published on its web site today, said investors behaved like “feral hogs” after Fed Chairman Ben S. Bernanke discussed tapering on June 19.
“The statements from President Fisher, along with the lack of any major economic reports out of the U.S. today, have encouraged investors to scale back their exposure to the greenback,” Ravi Bharadwaj, a senior market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “Markets are hypersensitive to commentary out of the Federal Reserve.”
This week will see speeches from Fed Bank of Atlanta President Dennis Lockhart, Fed Bank of Richmond President Jeffrey Lacker, Fed Bank of Cleveland President Sandra Pianalto and Fed Bank of San Francisco President John Williams.
The premium for one-year options granting the right to sell the euro against the dollar relative to those allowing for purchases is at 1.88 percentage points, the most bearish since Sept. 13.
“Long-term yields in the U.S. have continued to jump higher over the last week,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “That’s driving some inflows and strength into the U.S. dollar. There’s been a reassessment of the whole liquidity story and what will be the impact on rates across the board.”
The South African rand strengthened against all 16 of its major peers after sovereign bond yields climbed to their highest level on a closing basis in a year. The rand increased 0.9 percent to 10.0713 per dollar.
Sweden’s krona declined versus most of the majority of its most-traded counterparts as Chinese stocks fell the most in four years, signaling a bear market. The currency dropped 1.4 percent to 6.7642 per dollar after depreciating to the least since Nov. 16. It has tumbled 4.8 percent in the past week.
The Norwegian krone fell against the majority of major currencies, slipping as much as 1.9 percent to 6.1737, the lowest since December 2010.
U.S. durable-goods orders increased 3 percent in May after rising a revised 3.5 percent the previous month, according to a Bloomberg News survey before tomorrow’s Commerce Department report. The S&P/Case-Shiller index of home values for 20 cities climbed 10.6 percent for the year ended April after a 10.9 percent gain in March that was the biggest since 2006, a separate survey showed.
Trading in over-the-counter foreign-exchange options totaled $34.4 billion, compared with $62 billion on June 21, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $8.3 billion, the largest share of trades at 24 percent. Euro-dollar options were the second most-actively traded, at $6.4 billion, or 19 percent.
Dollar-yen options trading was 31 percent above the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 141 percent above average.