Dollar Snaps Four-Week Advance on Tepid Economic GrowthAndrea Wong
The dollar dropped versus a basket of major peers for the first time in a month as concern the U.S. economy is struggling to gain momentum boosted bets the Federal Reserve will keep interest rates lower for longer.
The pound was the biggest loser among the 16 major currencies this week as investors pushed back their forecasts for the timing of rate increases. South Korea’s won led gains after the central bank cut rates to revive economic growth. Ukraine’s hryvnia had the biggest weekly loss in four months amid a flareup in tensions with Russia. Fed Chair Janet Yellen speaks at the annual Jackson Hole, Wyoming, symposium next week.
“U.S. data has been a little bit soft as of late -- I don’t think it’s enough for the Fed to change its course in terms of raising interest rates,” Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York, said in a phone interview. “Geopolitical risks are constantly hanging over our head.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, dropped 0.2 percent to 1,019.42 this week in New York to end a four-week rally.
The U.S. currency rose 0.3 percent to 102.36 yen on the week. The euro fell 0.1 percent to $1.3401 for a fifth week of losses, the longest slide since March 2013. The yen fell 0.2 percent to 137.16 against the single currency.
The pound dropped for a sixth week against the dollar, its longest skid in four years, as investors pushed back their bets for the timing of the BOE’s first interest-rate increase since 2007.
BOE Governor Mark Carney said on Aug. 13 that policy makers will pay more attention to Britain’s ailing wage growth when deciding on interest rates.
“The market is busy pushing back its interest-rate hike expectations well into 2015,” Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London, said Aug. 13. “That is the key why the pound is being sold across the board.”
Sterling declined 0.5 percent to $1.6693 this week for the longest run of losses since June 2010. It touched $1.6658 on Aug. 14, the least since April 8. The pound depreciated 0.4 percent to 80.29 pence per euro and reached 80.36, its weakest level since June 12.
South Korea’s won had the best week since December 2011 after the Bank of Korea reduced the seven-day repurchase rate to 2.25 percent from 2.5 percent, as predicted by 14 of 18 analysts surveyed by Bloomberg. Governor Lee Ju Yeol said at a press briefing the cut will help boost the effect of government stimulus.
The currency rallied 2 percent to 1,016.61 versus the dollar.
“The BOK’s cut erased uncertainty in the currency market and investors are taking this as a chance to sell dollars,” Jude Noh, a Seoul-based chief foreign-exchange trader at Suhyup Bank, said Aug. 14.
The hryvnia was the worst performer among more than 150 global currencies tracked by Bloomberg this week after Ukraine said its troops attacked and destroyed “part” of a military column that entered country from Russia. Russia said the statements were based on “some fantasies,” according to RIA Novosti.
The Ukrainian currency sank 4.6 percent to 13.1250 per dollar on the week, extending its drop this year to 37 percent, the most in the world after Ghana’s cedi.
The euro dropped as futures bets by large speculators for the dollar to rise against the shared currency outnumbered bets for it to fall -- called net longs -- by 126,000 contracts as of Aug. 12, according to data from the Washington-based Commodity Futures Trading Commission. Net-long contracts were at 129,000 last week, the most since August 2012.
In the U.S., official data showed retail sales were little changed in July, the weakest performance in six months, while initial-jobless claims unexpectedly rose and U.S. consumer confidence fell.
“The number was weaker than expected,” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said of the retail report in an Aug. 13 phone interview. “This data doesn’t paint a picture of robust consumer spending at this point, so this is why we’re seeing this kind of reaction in the market,”
Yellen may offer some hints at monetary policy when she speaks Aug. 22 at Jackson Hole. The central bank has held its interest-rate target in a range of zero to 0.25 percent since 2008. It meets next on Sept. 17.
Traders see a 34 percent chance the Fed will increase its benchmark interest-rate target to at least 0.5 percent by June, futures contracts indicate. That’s down from a 51 percent likelihood at the end of last month.