The dollar weakened as speculation that Spain will seek a sovereign bailout eased investor demand for the currency as a haven.
The greenback remained lower after fewer Americans than forecast filed first-time claims for jobless benefits. The currency slid earlier against most of its 16 major peers after Federal Reserve Bank of Minneapolis President Narayana Kocherlakota yesterday repeated his call for the central bank to keep rates low until the jobless rate has dropped. The dollar earlier rose to the strongest in more than a week against the euro after Standard & Poor’s yesterday cut Spain’s sovereign- debt rating to one level above junk. South Africa’s rand gained for a third day on signs labor unrest is easing.
“Kocherlakota was coming up with fairly dovish remarks and the dollar is a softer currency on the back of the Fed’s very accommodative policy,” said Jane Foley, a senior currency strategist at Rabobank International in London. “On the backdrop of everything you’ve got going on with Spain, you have a weakened environment for the U.S. dollar.”
The dollar fell 0.4 percent against the euro to $1.2930 at 8:36 a.m. New York time, after appreciating 0.4 percent to $1.2826, the strongest since Oct. 1. It gained 0.5 percent against the Japanese currency, to 78.54 yen. The euro climbed 0.7 percent to 101.34 yen.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trade partners, fell 0.2 percent to 79.789. It earlier rose to 80.205, the highest since Sept. 11.
Applications for jobless benefits in the U.S. dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008, Labor Department figures showed today. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. One state accounted for most of the plunge in claims, a Labor Department spokesman said as the data were issued to the press.
Kocherlakota, in prepared remarks given in Great Falls, Montana, yesterday, called for the Fed to pledge near-zero interest rates until the unemployment rate falls below 5.5 percent, as long as inflation remains below 2.25 percent. Joblessness unexpectedly dropped to 7.8 percent last month.
S&P lowered Spain’s rating by two levels to BBB- from BBB+ and assigned a negative outlook to its debt. The country’s deepening recession is limiting government policy options, the New York-based ratings company said in a statement.
The euro snapped a three-day slide against the yen as the downgrade added to pressure on the Spanish government to seek assistance and make it possible for the European Central Bank to buy Spain’s bonds to contain borrowing costs.
Spanish 10-year bond yields have fallen from the euro-era record of 7.75 percent reached in July to as low as 5.55 percent since ECB President Mario Draghi said the central bank is ready to do “whatever it takes” to preserve the euro. While the ECB unveiled an unlimited debt-purchase program on Sept. 6, Spain’s Prime Minister Mariano Rajoy has held off on a decision about whether to request aid.
Rabobank’s Foley forecasts the euro will slip to $1.26 in the next month amid Spanish concern, but said she may revise her estimate higher.
“I’m becoming less sure that we’re going to get aggressive pullbacks” in the euro, she said. “Everybody knowing that the worse the news, the greater the chance the ECB will be in, means that those pullbacks will be softened.”
The euro appreciated 2 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar fell 3.9 percent and the yen lost 2 percent. European Union leaders will hold a two- day summit in Brussels starting Oct. 18.
“We may see some progress in Spain’s request for rescue toward the EU summit,” said Ken Takahashi, assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “The downside risk to the euro is limited until that time.”
South Africa’s rand appreciated for a third day against the dollar amid signs labor unrest that shut gold and platinum mines and spread to the transport industry is easing. The currency climbed 0.3 percent to 8.7183 per dollar.
Australia’s currency strengthened after data showed the nation added the most workers since May. The number of people employed climbed 14,500 in September, the statistics bureau said today. That’s almost three times the median estimate of economists surveyed by Bloomberg News. The jobless rate rose to 5.4 percent, the highest since April 2010, from 5.1 percent the prior month.
“The rise in the unemployment rate comes down to a rising participation rate,” Todd Elmer, head of Group-of-10 foreign- exchange strategy for Asia excluding Japan at Citigroup Inc. in Singapore, wrote in a report today. “Australia’s dollar may gain further” as the market digests the details of the report.
Australia’s dollar climbed 0.3 percent to $1.0269 and touched $1.0294, the strongest since Oct. 2.