Dollar Weakens Versus Yen on Bets U.S. Growth Rate Slowed
Thursday, 26 April 2012 | 14:30
The dollar fell for the first time in three days against the yen before a report tomorrow that economists said will show U.S. growth slowed, fueling bets the Federal Reserve will consider additional stimulus this year.
The U.S. currency declined against 14 of its 16 major counterparts, after Fed Chairman Ben S. Bernanke yesterday repeated a plan to keep borrowing costs low until at least late 2014. The pound strengthened to the highest level in more than seven months against the dollar after U.K. consumer confidence climbed to a nine-month high.
The dollar may be weaker because of “some disappointment that the Fed did not offer any change in the expected interest- rate profile,” said Audrey Childe-Freeman, global head of currency strategy at JPMorgan Chase & Co.’s JPMorgan Private Bank in London. “Softer GDP data tomorrow would confirm that policy normalization remains a distant prospect. This is dollar negative.”
The dollar dropped 0.6 percent to 80.89 yen at 10:48 a.m. London time. The U.S. currency declined 0.1 percent to $1.3229 per euro. It reached $1.3263, the weakest level since April 3. The euro weakened 0.5 percent to 107.02 yen.
The implied volatility of three-month options for Group of Seven currencies fell to its lowest level in more than four years. The JPMorgan Volatility Index slid to 9.25 percent, which would be the lowest close since 2007. The 10-year average is 10.6 percent.
Lower volatility makes investments in currencies of nations with higher benchmark rates more attractive because the risk in such trades is that market moves will erase profits.
U.S. gross domestic product rose at a 2.5 percent annual rate in the first quarter after advancing 3 percent in the previous three months, according to the median forecast of economists surveyed by Bloomberg News.
“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” Bernanke said yesterday at a press conference following a two-day meeting of the Federal Open Market Committee in Washington.
“Bernanke was relatively dovish at the press conference, which has set a soft dollar bias this morning,” said JPMorgan Private Bank’s Childe-Freeman.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell 0.2 percent to 78.929, after dropping to 78.823, the lowest level since April 3.
The dollar has weakened 2.8 percent this year, the second worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen declined 8.4 percent, while New Zealand’s dollar, known as the kiwi, has gained the most, climbing 2.8 percent.
New Zealand’s central bank left its official cash rate at 2.5 percent at a policy meeting today, signaling the nation’s rising currency may delay an increase in borrowing costs.
“Unfortunately for the RBNZ, influencing the kiwi is going to be a big ask,” Lauren Rosborough, a senior foreign-exchange strategist at Societe Generale SA in London, wrote in a note to clients. “The currency’s strength in part relates to perception -- a robust economy with limited fall-out from the global and European crises coupled with solid government accounts.”
New Zealand’s currency appreciated 0.3 percent to 81.67 U.S. cents.
The pound climbed for a ninth day against the dollar after a Nationwide Building Society index of sentiment rose to 53 in March from 44 the previous month.
The pound gained 0.2 percent to $1.6198, after touching $1.6207, the highest level since Sept. 2. It was little changed at 81.66 pence per euro.
The British currency may strengthen to $1.6425 should it end the day’s trading above a key level of so-called resistance, Commerzbank AG said, citing trading patterns.
“Pound-dollar is starting to erode the $1.6167 resistance,” Karen Jones, head of fixed-income, commodity and currency technical analysis in London, wrote in a note to clients. “This is the October 2011 high and the 61.8 percent retracement of the move seen 2011-2012,” she wrote, citing Fibonacci analysis.
Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. Resistance refers to an area on a chart where technical analysts anticipate orders to sell a security to be clustered.