Dollar Weakens on Bernanke; Emerging Currencies AdvanceJohn Detrixhe
The dollar dropped by the most since October 2011 after Federal Reserve Chairman Ben S. Bernanke said the U.S. economy still requires monetary stimulus to bolster growth and lower unemployment.
The greenback fell versus all but one of its 16 most-traded peers after minutes of the Fed’s June meeting released yesterday showed many policy makers wanted more signs the labor market is improving before slowing bond purchases. Emerging-market currencies rallied and stocks and U.S. Treasuries gained. The yen strengthened after the Bank of Japan boosted its view of the economy and refrained from adding stimulus.
“All the talk of the town is Bernanke and tapering and what he did and didn’t say,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a telephone interview. “I look at euro, I look at equities, 10-year bond yields, they’re still holding most of their Bernanke move.”
The Bloomberg Dollar Index, which monitors 10 major currencies, slid 1.4 percent to 1,034.33 at 5 p.m. in New York. It was the biggest daily decline on a closing basis since Oct. 27, 2011.
The dollar lost 0.9 percent to $1.3097 per euro after touching $1.3207, the weakest level since June 21. It depreciated beyond its 50-, 100- and 200-day moving averages with Europe’s shared currency, which are seen by some traders as potential turning points. The dollar fell 0.7 percent to 98.96 yen and slid to 98.27 yen, the lowest since June 27. The yen fell 0.2 percent to 129.61 per euro.
Futures traders had $14.2 billion of wagers as of June 25 that the dollar would rally against the pound, yen and six other currencies, compared with $14.5 billion of bets at the end of last year that the currency would decline, or net short positions, according to Commodity Futures Trading Commission data compiled by Nomura Holdings Inc.
“Most of the investors I talk to, 90 percent of the investors I talk to, are equally bullish the dollar,” David Woo, global head of rates and currencies at Bank of America Merrill Lynch in New York, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene. “When positioning becomes crowded, a little disappointment like we saw last night, all of a sudden you see this massive unwinding” of the dollar.
Emerging-market currencies from South Korea’s won to Russia’s ruble rallied after Bernanke signaled that stimulus to the world’s largest economy won’t be dropped soon.
The won climbed 1.2 percent to close at 1,122.41 per dollar, the biggest gain since December 2011. The ruble advanced 1 percent to 32.5831 per dollar and reached 32.4795, the strongest level since June 19.
Bernanke said yesterday in a question-answer session after a speech in Cambridge, Massachusetts, that “highly accommodative monetary policy for the foreseeable future is what’s needed in the U.S. economy.” U.S. unemployment, at 7.6 percent, hasn’t been below 7 percent since November 2008.
Minutes of the Fed’s June 18-19 meeting released earlier showed “many members indicated that further improvement in the outlook for the labor market would be required before it would be appropriate to slow the pace of asset purchases.” The Fed buys $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs.
The Standard & Poor’s 500 Index gained 1.4 percent. Benchmark U.S. 10-year notes rose for a fourth day, pushing yields down five basis points, or 0.05 percentage point, to 2.57 percent, the lowest in almost a week.
The greenback remained weaker versus the euro and yen after Labor Department data showed initial claims for jobless benefits in the U.S. unexpectedly rose last week to a two-month high of 360,000. A Bloomberg survey forecast a decline to 340,000.
Not every currency is “reflecting the same reality at the moment,” Westpac’s Franulovich said.
The Australian and New Zealand dollars pared earlier gains versus the greenback. The kiwi, as the New Zealand currency is known, was up 0.2 percent to 78.53 U.S. cents after climbing as much as 1.7 percent to 79.69, the most since June 19. The Aussie traded at 91.88 U.S. cents, a 0.2 percent advance, after rallying 1.5 percent earlier to 93.06 cents.
“Given a deeper read of Bernanke’s Q&A, tapering is still very much on the table,” Franulovich said. “That reaction by Aussie and kiwi seems about right.”
The yen rose against the dollar as the BOJ increased its assessment of the economy by referring to a recovery for the first time since before an earthquake in March 2011. Policy makers stuck with their pledge to expand the monetary base by 60 trillion yen ($606 billion) to 70 trillion yen per year and said the economy was starting to improve moderately.
Trading in over-the-counter foreign-exchange options totaled $31 billion, compared with $37 billion yesterday, 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 $7.9 billion, the largest share of trades at 25 percent. Euro-dollar options totaled $7.1 billion, or 23 percent.
Dollar-yen options trading was 17 percent less than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 53 percent more than average.
The dollar has dropped 2 percent over the past week versus nine developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 0.4 percent, and the euro rose 0.2 percent.