Dollar Falls to 1-Month Low as Economic Reports Back Fed Stance

The dollar fell to a one-month low after economic reports cast doubt on the strength of U.S. recovery, supporting the Federal Reserve’s commitment to record-low interest rates.

The U.S. currency slipped to the lowest in more than two weeks versus the euro as reports showed durable-goods orders in May unexpectedly fell and the economy contracted more than estimated in the first quarter. Indonesia’s rupiah slid to the lowest level since February as the central bank said it will allow weakness in the currency to help exports. Poland’s zloty strengthened amid a parliamentary vote of confidence in the government.

“We saw some U.S. selling pretty much across the board,” said Ken Wills, a Toronto-based currency strategist at the broker and payment provider USForex Inc. “It looked like there could be more, but the market quickly digested the data, realized it’s far behind us and it’s not expecting any change from the Fed based on this data.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, reached the lowest level since May 19 and fell 0.2 percent at 1,008.29 as of 5 p.m. in New York.

Market Prices

The dollar fell 0.1 percent to 101.87 yen, set for a 1.3 percent drop this quarter. The euro rose 0.2 percent to $1.3629, having fallen 1 percent since March 31, set for its first quarterly slide since the three months through March 2013. The common currency was little changed today at 138.83 yen.

South Korea’s won is the best performing of the greenback’s 16 major peers this quarter. The currency gained 4.3 percent while the Canadian dollar and Brazil’s real added 3.1 percent and 3 percent, respectively. Sweden’s krona and Norway’s krone lost the most, declining 3.9 percent and 2.3 percent.

The dollar was set for the tightest quarterly trading range in almost two years versus the yen as stimulus from central banks in the world’s biggest economies pushes price swings to record lows.

The 3.31-yen difference between the dollar’s high of 104.13 yen and low of 100.82 yen this quarter is the smallest since the three months ended September 2012, according to data compiled by Bloomberg. The gap of 4.9 U.S. cents between the euro’s strongest level of $1.3993 and weakest of $1.3503 over the same period matches the least since the second quarter of 2007.

Range Trade

“We were trading really tight ranges and then we got this data and it really surprised to the downside.” said Eimear Daly, the head of market analysis at London-based broker Monex Europe Ltd. “The U.S. economy is not just trying to regain strength after a winter freeze, but actually has real structural problems.”

Price swings in currency markets have diminished this year as central banks pledge to keep down interest rates to spur growth. The Fed last week reduced its outlook for economic growth and held its target for short-term interest rates at virtually zero, where it has been since December 2008. Fed Chair Janet Yellen said the central bank plans to keep its interest-rate target low for a considerable time after it ends bond buying.

The U.S. economy contracted the most since the first three months of 2009 in the first quarter, shrinking at a 2.9 percent annualized rate, according to the Commerce Department. Demand for all durable goods -- items meant to last at least three years -- decreased 1 percent, after a 0.8 percent increase in April.

Economic Reading

“A weak durable goods reading once again puts the cat among the pigeons in terms of the timing and the magnitude of any monetary tightening from the Federal Reserve,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “Short-term interest rates are likely to remain very, very low for quite some time, even after the Fed’s finished tapering, and I think that is what is really weighing on the dollar.”

The dollar has weakened 0.7 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen strengthened 3 percent, while the euro declined 1.7 percent.

Bank Indonesia is letting the rupiah be temporarily “undervalued” to improve the competitiveness of the nation’s shipments and to reduce imports, Senior Deputy Governor Mirza Adityaswara said in Jakarta yesterday. The nation’s trade shortfall widened to $1.96 billion in April, the largest since July last year.

The rupiah fell 0.8 percent to 12,090 per dollar, prices from local banks showed, after reaching 12,094, the weakest level since Feb. 12.

Zloty Gains

Poland’s zloty added 0.4 percent versus the euro as Prime Minister Donald Tusk sought a parliamentary vote of confidence after the publication of secretly recorded conversations between the central bank governor and interior minister on steps to boost the economy and help the government win elections. Tusk won the poll. The currency rose 0.6 percent to 3.0357 against the dollar.

The Norwegian krone declined after the Norges Bank said last week a weakening of the economy may warrant an interest rate reduction. The currency lost 0.5 percent to 8.3562 per euro.

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