Dollar Drops as ECB Speculation Lowers U.S. Yields

The dollar fell against a basket of major peers for the first time in four days as Treasury yields declined on speculation the European Central Bank will introduce easing measures to boost the region’s economy.

The U.S. currency weakened the most against the yen in a week as Treasury 10-year note yields reached the lowest level in six months. The pound weakened after the Bank of England signaled it’s willing to wait until next year to increase interest rates even as the U.K. economy strengthens. Brazil’s real rose to a one-month high as Finance Minister Guido Mantega said the currency is back to normal after recovering losses.

“Dollar-yen has been married to U.S. yields,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “The Germans have gotten behind the idea of the ECB being more aggressive. It’s convincing the market we’ll get something in June, that’s why Treasuries yields are moving lower.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, fell 0.1 percent to 1,008.77 at 5 p.m. in New York. U.S. 10-year yields fell six basis points, or 0.06 percentage point, to 2.54 percent, after reaching the lowest level since Oct. 31.

The greenback dropped 0.4 percent to 101.90 yen, and was little changed against the euro at $1.3715. The common currency slipped 0.3 percent to 139.75 yen.

Real Recovery

Brazil’s finance minister said in testimony to lawmakers that “no one talks about turbulence now” regarding the currency of Latin America’s biggest economy. The real has rallied 7 percent this year in the best performance among 24 emerging-market currencies tracked by Bloomberg.

“Mantega is saying the exchange rate has normalized because there is less risk of a large depreciation,” Pedro Tuesta, an economist at 4Cast Ltd., said in a phone interview from Washington.

The real gained 0.6 percent to 2.2023 per U.S. dollar, touching the strongest level on a closing basis since April 9.

The Indonesian rupiah rose 0.8 percent to 11,446 per dollar as presidential frontrunner Joko Widodo said his Indonesian Democratic Party of Struggle was joined by the National Awakening Party and the National Democratic Party in nominating him for president.

U.K. Policy

In the U.K., policy makers in their quarterly Inflation Report said while the level of spare capacity in the economy had “narrowed slightly” in the past three months, there “remains scope to make greater inroads into slack before raising Bank Rate.” The Bank of England’s benchmark has been at a record-low 0.5 percent since March 2009.

“The pound has had a setback,” said Jane Foley, a senior currency strategist at Rabobank International in London. “There is good reason for Carney not to be in a particular rush to raise interest rates. His tone has served to curb some of the over-optimism that has been brewing recently. Many people who had been bringing” their rate expectations “forward will be reevaluating that now,” she said.

The pound fell 0.4 percent to $1.6767 after climbing to $1.6996 last week, the highest level since August 2009. The U.K. currency depreciated 0.4 percent to 81.79 pence per euro after earlier appreciating to 81.27 pence, the strongest since January 2013.

Market Measure

The U.K. currency has rallied 8.8 percent in the past year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar declined 2.2 percent and the euro gained 4.8 percent.

ECB President Mario Draghi said last week he was comfortable with adding further stimulus next month as the central bank looks to stave off the threat of falling prices, driven in part by a strengthening euro, which rose to the strongest level since October 2011 last week.

“We are preparing a range of measures,” ECB Executive Board member Peter Praet was quoted as saying in an interview with Germany’s Die Zeit. “We could offer more long-term loans to banks, possibly against conditions. We could cut interest rates once again. A combination of measures is also thinkable.”

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