Dollar Falls Most in 10 Weeks After Fed Meeting; Krone Slumps

The dollar fell the most in 10 weeks against the euro after the Federal Reserve said it will keep interest rates at almost zero for a “considerable time” and cut the outlook for economic growth.

Norway’s krone had the biggest loss versus the euro in a year after Norges Bank Governor Oeystein Olsen said he is ready to cut interest rates for the first time since March 2012. The Canadian dollar rallied as inflation rose above the central bank’s target. Global currencies volatility sank to record low. The U.S. currency weakened before a report on June 25 that is forecast to show orders for big ticket factory goods fell last month.

“The Fed’s intention is to convince the market that policy will remain accommodative and liquidity abundant for a long, long time,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in an e-mail. This condition “tends to work more against the dollar than for it.”

The greenback fell 0.4 percent to 1.3600 per euro this week in New York, the biggest loss since April 11. It was little changed at 102.07 yen. The Japanese currency slipped 0.1 percent to 138.82 versus the euro.

Price Swings

JPMorgan Chase & Co.’s Global FX Volatility Index reached 5.51 percent on June 19, the least since Bloomberg started collecting the data in 1992.

The pound gained 0.3 percent to $1.7013, after rallying 1 percent last week. Bank of England Governor Mark Carney said June 12 that the first interest-rate increase “could happen sooner than markets currently expect.”

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 52,596 on June 17, the highest level since December 2007.

The Canadian dollar was the best performing of 31 major currencies this week, adding 0.9 percent to C$1.0758 against the greenback. A gauge of inflation exceeded the central bank’s target for the first time in two years, fueling bets the economy is picking up.

The currency fell to the weakest level since 2009 in March after Bank of Canada Governor Stephen Poloz told reporters he couldn’t rule out a rate cut if the economy worsened.

Canada Watch

“They’re basically going to be left on the sidelines because they won’t necessarily be able to cut rates and they won’t be eager to raise rates,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, by phone from Toronto. “It creates a fairly complicated communications strategy for the Bank of Canada.”

The krone fell on the central bank outlook and as oil companies operating in Norway, western Europe’s largest producer, will cut investment by 10 percent next year, according to Norges Bank.

“With a weaker outlook for growth, some talk of a probability for a rate cut, we will see a weaker krone and that could be enough to prevent a cut,” said Erik Bruce, a senior economist at Nordea Bank AB in Oslo. “That’s what happened last year when Norges Bank revised down their forecast.”

The currency fell 2.5 percent to 8.3212 per euro, the most since June 2013.

Indonesia’s rupiah and the Turkish lira led declines in emerging-market currencies on concern the nations’ trade deficits will widen. Oil prices rose for a second week as the advance of Sunni fighters from a breakaway al-Qaeda group raised the specter of sectarian civil war in the nation.

Emerging Markets

“The situation in Iraq is of concern,” said Ho Woei Chen, an economist at United Overseas Bank Ltd. in Singapore. “Emerging-market currencies, especially those with problematic external balances and a reliance on imported oil, are vulnerable.”

The rupiah slid 1.5 percent to 11,972 per dollar and the lira sank 1 percent to 2.1414 against the greenback, having lost 2 percent the previous week.

Fed policy makers held the target for the benchmark federal funds interest rate at almost zero, where it’s been since December 2008. Officials reduced monthly buying to $35 billion per month, as forecast, from as much as $85 billion in 2013.

Fed meeting participants estimated long-term growth for the U.S. economy of 2.1 percent to 2.3 percent, compared with 2.2 percent to 2.3 percent in March and 2.5 percent to 2.8 percent in January 2010 in the wake of the most recent recession.

Economic Indicators

Factory orders for durable goods fell 0.2 percent in May, according to the median estimate in a Bloomberg News survey of economists. Orders rose 0.6 percent in April.

The dollar has fallen 1.3 percent in the past six months among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has added 0.8 percent and the euro fell 1.9 percent.

“Volatility across asset classes has continued to plummet,” Greg Moore, senior currency strategist at Royal Bank of Canada in Toronto, wrote in a note to clients yesterday. “The combination of low U.S. yields, low foreign-exchange volatility and USD’s diminished status as a safe-haven leave it vulnerable to becoming the ‘default’ funding currency in emerging market-G-10 carry trades and we continue to highlight this as a major risk to the bullish USD consensus view.”

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