Dollar weakens amid speculation on Bernanke report

Krona Rallies

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 Report

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.

‘Position-Related’

“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.

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