Dollar Falls as Growth Slows; Pound Gains After Carney Speech

The dollar fell for a second day against a basket of currencies as government reports showed the U.S. economy remains sluggish, backing speculation the Federal Reserve will hold interest rates at historically low levels.

The pound strengthened against the euro to highest level since November 2012 as Bank of England Governor Mark Carney said the central bank may raise interest rates from a record low earlier than investors expect and expressed concern that mounting debt related to the housing market could undermine stability. New Zealand’s dollar surged the most in four months after the central bank raised interest rates and flagged further increases. The yen reached a four-month high versus the euro as the Bank of Japan started a policy meeting.

“Canadian dollar, Aussie have generally done a bit better and dollar is a bit under pressure,” said Sebastien Galy, a senior currency strategist at Societe Generale SA in New York, in a phone interview. “The environment is a bit risk-averse. The data was a bit weaker also in the U.S., as the retail data wasn’t very good.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, dropped 0.3 percent to 1,011.61, as of 5 p.m. in New York.

Japan’s currency gained 0.2 percent to 137.83 per euro and touched the strongest level since Feb. 6. The yen added 0.4 percent to 101.70 per dollar. The euro gained 0.2 percent to $1.3552. The Canadian dollar rose 0.1 percent to C$1.0856 per U.S. dollar, while the Australian dollar strengthened 0.5 percent to 94.26 cents per greenback.

Carney Stance

“There’s already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced,” Carney said in his debut speech at the Mansion House in London today. “It could happen sooner than markets currently expect.”

The pound rose 0.8 percent to $1.6929. Sterling added 0.7 percent to 80.05 pence per euro, reaching the strongest level since Nov. 14, 2012.

“Carney is definitely coming out on the hawkish side with his comments,” said Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut. “The pound is acting as you would expect with pound-dollar rising and euro-pound making new multi-month lows.”

South Africa’s currency gained for the first time in four days and bonds advanced after a labor union accepted a wage offer from platinum companies, raising the prospect of an end to the 20-week strike. The rand strengthened 0.8 percent to 10.6736 per dollar.

Price Swings

JPMorgan Chase & Co.’s Global FX Volatility Index was at 5.9 percent after reaching a record 5.76 percent on June 6 as the Fed to the BOJ buy bonds and the European Central Bank extends stimulus.

The BOJ, led by Governor Haruhiko Kuroda, has kept its policy of buying about 7 trillion yen ($68.6 billion) of government bonds a month since April 2013 in stimulus that tends to weaken the currency. All 33 analysts surveyed by Bloomberg forecast the central bank will keep policy unchanged this week. Nine percent of economists surveyed from June 3 to 6 predicted extra monetary stimulus in July, down from 38 percent in the previous survey.

“I don’t think the BOJ will do anything this week,” said Koji Iwata, vice president of foreign-exchange trading at Mizuho Bank Ltd., in New York. “It’s possible Governor Kuroda will strip out expectations of additional easing in July that are held by a few people.”

Kiwi Rally

New Zealand’s central bank boosted its official cash rate by a quarter-percentage point to 3.25 percent, the third increase this year, and signaled more tightening to come.

“It is important that inflation expectations remain contained and that interest rates return to a more neutral level,” Wheeler said in a statement. The two-year swap rate climbed 11 basis points, or 0.11 percentage point, to 4.13 percent, the highest since July 2010.

RBNZ Assistant Governor John McDermott said currency traders are mis-pricing the nation’s dollar and should be taking more notice of falling commodity prices.

“The New Zealand dollar is a commodity currency,” McDermott said in an interview. “It should move and if people were pricing it right, now is the time for it to be moving down.”

Rate Outlook

RBNZ expects to raise the benchmark rate another 50 basis points this year and, while forecasts are always conditional, “it would take more than what we can see at the moment” for it to deviate from that path, McDermott said.

New Zealand’s currency jumped 1.6 percent to 86.87 U.S. cents, reaching the biggest gain since Feb. 4.

U.S. retail sales rose 0.3 percent last month followed a revised 0.5 percent gain in April that was much larger than previously estimated, Commerce Department figures showed today in Washington. The median forecast of 83 economists surveyed by Bloomberg called for a 0.6 percent advance.

“With April’s upward revision and May’s slight miss, I think the outlook for growth in the U.S. is still positive and that trend is still intact,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “The market is aware it’s not going to be a perfectly smooth ride.”

Jobless claims climbed by 4,000 in the week ended June 7, a Labor Department report showed today in Washington. The median forecast of 52 economists surveyed by Bloomberg called for 310,000.

The dollar has lost 0.7 percent this year among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro dropped 2.2 percent and the yen added 3.2 percent.

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