June 14 (Bloomberg) -- The dollar fell for a second day against the yen after reports signaled a slowing U.S. economy, boosting the case for the Federal Reserve to take more steps to bolster growth.
The euro rose against the dollar on bets its 5 percent decline since April was overdone even as Spanish bond yields rose to a record after Moody’s Investors Service cut the nation’s credit rating. The U.S. currency declined versus 15 of its 16 major peers after initial jobless claims rose last week and inflation declined in May. New Zealand’s dollar strengthened as the central bank gave no indication it would cut interest rates.
“That jobless claims are higher than expected shows that we’ve reversed a lot of the good performance we’ve seen this year,” said David Mann, regional head of research for the Americas at Standard Chartered Plc in New York. “Potential action or further dovishness from the Fed next week could lead to the dollar heading lower.”
The dollar depreciated 0.3 percent to 79.26 yen at 10:10 a.m. in New York after falling 0.1 percent yesterday. The U.S. currency dropped 0.3 percent to $1.2599 versus the euro. The 17- nation currency added 0.1 percent to 99.87 yen.
South Africa’s rand fell by the most among the 16 major currencies tracked by Bloomberg. It lost 0.3 percent to 8.4205 per dollar.
Hedge funds and other large speculators increased their bets on a drop in the euro against the dollar to a record high last week, Commodity Futures Trading Commission data showed June 8. Futures traders increased net euro short contracts to 214,418 in the week ended June 5, the figures showed.
The shared currency closed above its 20-day moving average, at $1.2543 yesterday, for the first time since May 1, a move that may be helping it gain today, Brown Brothers Harriman & Co. wrote in a note to clients.
“The situation in Europe poses significant risks to the U.S. financial system and economy and must be monitored closely,” Fed Chairman Ben S. Bernanke told lawmakers on June 7. “As always, the Federal Reserve remains prepared to take action as needed to protect the U.S. financial system and economy in the event that financial stresses escalate.”
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 through 2011 to stimulate growth through lower borrowing costs. The central bank meets June 19-20.
“The dollar is susceptible to weakening because expectations for additional easing are rising ahead of the policy meeting next week,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp., a currency-margin company. “A decline in employment and the economy is the biggest concern for the Fed.”
The consumer price index fell 0.3 percent, more than forecast and the biggest drop since December 2008, after no change the prior month, the Labor Department reported today in Washington. Economists projected a 0.2 percent decrease, according to the median estimate in a Bloomberg News survey.
Claims for jobless benefits unexpectedly climbed by 6,000 to 386,000 in the week ended June 9 from a revised 380,000 the prior week that was more than first estimated, Labor Department figures showed today in Washington. Economists projected claims would fall to 375,000, according to the median estimate in a Bloomberg News survey.
The euro fell earlier against the yen after Italy’s costs of borrowing for three years climbed to the highest since December at an auction. Investors were also waiting for an election in Greece this weekend that may indicate whether the nation will remain in the euro bloc.
Moody’s yesterday cut Spain’s rating three steps to Baa3, one level above junk, citing its increased debt burden and weakening economy. The Spanish 10-year yield climbed as much as 25 basis points, or 0.25 percentage point, to a euro-era record 6.998 percent.
“The global economy is definitely moderating and there’s this fear that’s related to the weakness of things that are happening in Europe,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “We’re going through some positioning, squaring up ahead of the Greek election. There’s a lot of uncertainty with the outcome for Greece.”
Italy sold 3 billion euros ($3.8 billion) of three-year notes today at an average yield of 5.3 percent, from the 3.91 percent at the previous auction on May 14, and the highest since December. The country also auctioned debt due in 2019 and 2020.
The euro has weakened 1.5 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar gained 2.3 percent, and the yen advanced 8.7 percent.
New Zealand’s dollar rallied against all 16 major counterparts after the central bank gave no immediate sign it would cut interest rates when it kept its benchmark at a record low.
The kiwi approached a one-month high after Reserve Bank of New Zealand Governor Alan Bollard said the current exchange rate is more comfortable than March and signaled he expects to hold the 2.5 percent official cash rate till mid-2013.
“Recent weakness in the kiwi has allowed the RBNZ to leave interest rates on hold because we’re getting, to a certain extent, stimulus to the economy as a consequence of that,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “That’s certainly supportive of the New Zealand dollar.”
The kiwi rose 0.9 percent to 78.02 U.S. cents, after climbing to 78.10 yesterday, the strongest since May 14.