Dollar Snaps Five-Day Losing Stretch Amid Drop in Risk AppetiteJohn Detrixhe
The dollar ended five days of losses against a basket of its major counterparts as investor risk appetite shrank and global stocks dropped.
The Bloomberg Dollar Spot Index rose from almost a five-month low as U.S. equities declined. The Swiss franc gained versus most major peers, while Brazil’s real pared a fourth weekly advance. Futures traders turned bullish on the Australian dollar for the first time in 11 months.
“It’s a little bit of risk-off,” Carl Forcheski, a director in corporate currency sales at Societe Generale SA in New York, said in a phone interview. “The whole equity selloff, I think people are just reevaluating stock prices, I think they’re due for a correction.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose as much as 0.3 percent to 1,007.65 before trading at 1,006.46 at 5 p.m. in New York, up 0.1 percent. It sank yesterday to 1,004.01, the lowest since Oct. 30. The gauge fell 1 percent this week.
The dollar was little changed at $1.3885 per euro, dropping 1.3 percent this week, the most since the five days ended Sept. 20. The U.S. currency gained 0.1 percent to 101.62 yen, paring a weekly decline to 1.6 percent. The yen depreciated 0.1 percent to 141.13 per euro.
The dollar’s move was “a sign of market jitters,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “More of the developed-market equity space is getting taken to the woodshed.”
The Standard & Poor’s 500 index of U.S. stocks fell 1 percent, and the MSCI World Index dropped 1.1 percent. Equities declined amid concern that company earnings are failing to justify rising share prices.
“Valuation concern is basically what you get to when you run out of fingers on your first hand for explanations,” Steven Englander, managing director and Global Head of G10 FX Strategy at Citigroup Inc. in New York, said in a phone interview. “It’s there by omission. Nothing else to seems to fit the pattern.”
The pound sank against the dollar as equities fell, damping the outlook for the U.K.’s financial industry. Sterling dropped as much as 0.4 percent to $1.6718, the biggest intraday slide since March 19, before trading at $1.6733, down 0.3 percent.
“The pound tends to correlate with global stock markets given its heavy reliance on financial industry,” said Neil Jones, the London-based head of financial institutional sales at Mizuho Bank Ltd.
Futures traders increased to the highest since February 2011 their bets that sterling will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the pound compared with those on a drop -- so-called net longs -- was 46,477 on April 8, compared with net longs of 33,572 a week earlier.
The franc rose as investors sought safety. The Swiss currency advanced as much as 0.2 percent to 87.44 centimes per dollar before trading at 87.61 centimes. It gained 1.8 percent on the week.
The lira weakened for a third day after Moody’s Investors Service cut its outlook on Turkey’s debt rating to negative. Turkey’s currency depreciated 0.3 percent to 2.1136.
Brazil’s real gained this week on bets the central bank will control inflation by allowing the currency to advance as policy makers phase out increases in borrowing costs.
The real strengthened 0.8 percent from April 4 to 2.2187 per dollar. It declined 0.5 percent today.
Australia’s dollar declined 0.2 percent to 93.97 U.S. cents after rising to 94.61 cents yesterday, the strongest since Nov. 8. The currency has strengthened more than 5 percent against its U.S. peer this year, helped by Reserve Bank of Australia Governor Glenn Stevens signaling in February an end to interest rate cuts. It fell to 86.60 cents in January, the lowest since July 2010.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie dollar compared with those on a drop was 3,310 on April 8, compared with net shorts of 4,880 a week earlier, CFTC figures show.
The dollar dropped for the week against most major peers after minutes released April 9 of the Federal Reserve’s last meeting damped bets U.S. policy makers are moving toward raising interest rates.
“Several participants noted that the increase in the median projection overstated the shift in the projections,” according to the minutes of the Federal Open Market Committee policy session. Some expressed concern the rate forecasts “could be misconstrued as indicating a move by the committee to a less accommodative reaction function,” the minutes showed.
The Fed cut monthly bond purchases by $10 billion to $55 billion at their March 18-19 meeting. Fed Chair Janet Yellen said the central bank may start to raise interest rates “around six months” after ending the asset-buying program.
“It was the slightly more dovish tone from the Fed than the market expected” that weakened the dollar, said Richard Falkenhall, a strategist at SEB AB in Stockholm.
The greenback has fallen 2 percent in the past three months, the third-worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro weakened 0.2 percent, while Japan’s currency gained 0.7 percent.
The yen strengthened against most major peers this week after the Bank of Japan refrained from adding monetary stimulus at a policy meeting.