The dollar dropped against most major peers amid speculation Federal Reserve Chairman Ben S. Bernanke will seek to damp investor expectations of a reduction in stimulus when he testifies to Congress tomorrow.
The euro rose for the first time in three days versus the greenback even after German investor confidence unexpectedly fell. India’s rupee reached a two-week high after policy makers raised interest rates. Sweden’s krona climbed after minutes were released of the central bank’s last meeting. Bernanke said July 10 U.S. unemployment and inflation warrant further stimulus.
“The message is resonating with investors that any Fed tapering is data-dependent,” Andrew Wilkinson, chief economic strategist at Miller Tabak and Co. in New York, said in a telephone interview. “That’s hindering the advance in the dollar, which built a head of steam earlier in the month.”
The dollar lost 0.8% to $1.3162 per euro at 2:53 p.m. New York time. The U.S. currency depreciated 0.7% to 99.18 yen. The shared European currency was little changed at 130.54 yen.
JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, slipped to almost a one-month low. The gauge was at 10.50% after dropping to 10.47% on July 9, the lowest level since June 18. The average this year is 9.32.
The yield on U.S. Treasury two-year notes touched 0.32%, almost the lowest since June 20.
“The yield has been receding, and as it recedes it’s been taking the dollar lower across the board,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a phone interview.
Brazil’s currency slid versus its 31 most-traded counterparts after a report showed inflation slowed, damping bets the central bank will increase borrowing costs at a faster place. The real weakened 1.4% to 2.2522 per dollar after strengthening 0.5% earlier and rallying 2.1% yesterday in the biggest jump since June 2012.
The rupee gained after the Reserve Bank of India increased the marginal standing facility rate and the bank rate to 10.25% from 8.25% late yesterday in Mumbai, according to a statement on its website. The monetary authority also said it will conduct open-market sales of government debt totaling 120 billion rupees ($2 billion) on July 18.
The Indian currency appreciated 1% to 59.3200 per dollar, according to prices from local banks compiled by Bloomberg. It reached 59.1250, the strongest since July 1. The rupee fell to a record 61.2125 on July 8.
Sweden’s krona rallied versus the greenback after minutes of the Riksbank’s last meeting showed policy makers’ concern that household debt is mounting turning their focus away from the currency’s strength. The central bank decided July 2 to keep its main interest rate at 1% for at least another year rather than cutting it.
The krona appreciated 1.3% to 6.5944 and reached 6.5774, the strongest level since June 21.
Trading in over-the-counter foreign-exchange options totaled $23 billion, compared with $31 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $4.7 billion, the largest share of trades at 21%. Dollar-Chinese-yuan options totaled $4.3 billion, or 19%.
Dollar-yen options trading was 26% less than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 106% more than average.
Bernanke is scheduled to deliver his semi-annual monetary policy report to Congress this week, starting tomorrow at the House Financial Services Committee. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its latest round of quantitative-easing to cap borrowing costs, a program that tends to debase the currency.
The dollar climbed 4% against the euro and 4.9% versus the yen between June 19, the day Bernanke said policy makers may start slowing bond purchases this year if economic growth meets their projections, and July 9.
The Fed chief said July 10 the U.S. still needs “highly accommodative” monetary policy. Minutes released the same day of the central bank’s last policy meeting showed “about half” of participants indicated “it likely would be appropriate” to end the buying late this year.
“Most of the dollar move is position-related right now,” Mike Moran, a senior currency strategist at Standard Chartered Plc in New York, said in a telephone interview. “The market is clearly overextended in long-dollar positions. The risk-reward certainly doesn’t favor being long dollars going into the meeting.” A long position is a bet an asset will rise in value.
U.S. unemployment, at 7.6%, hasn’t been below 7% since November 2008. The consumer price index is forecast to end the year at 1.5%, according to economists surveyed by Bloomberg. The Fed’s target is 2%.
The dollar pared earlier losses versus the yen today after the Labor Department said the consumer-price index rose 0.5% in June, the most in four months. The gauge gained 1.8% from a year earlier, the data showed.
The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, fell 0.6% to 1,031.33.
The euro pared a gain versus the U.S currency after the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations fell to 36.3 this month from 38.5 in June. A Bloomberg survey forecast a rise to 40.