The euro and franc strengthened as a slide in stocks around the world fueled demand for the relative safety of the currencies versus emerging-market counterparts.
The dollar extended a decline against the majority of its most-traded peers after a measure of U.S. economic activity was weaker than forecast. The yen strengthened for the first time in three days against the dollar. India’s rupee fell to a record and Indonesia’s rupiah slumped to the lowest level since April 2009 on concern funds will flow out of Asian markets as the Federal Reserve reduces its bond-purchase program.
“The weakness in some of the emerging-Asian currencies and modest strength in the yen would be consistent with a major risk aversion,” Robert Sinche, global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a telephone interview. As for the euro, “you have European investors who are pulling money back from emerging-market exposure. Apparently there was a lot of that.”
The euro gained 0.6% to $1.3418 as of 9:01 a.m. New York time. The common currency rose 0.4% to 130.555 yen. Japan’s currency appreciated 0.2% to 97.38 per dollar after advancing to 95.81 on Aug. 8, the strongest since June 19. Switzerland’s franc climbed 0.6% to 91.83 centimes against the dollar. It was little changed at 1.2326 per euro.
The MSCI Asia Pacific Index of shares fell 1.7% while the Stoxx Europe 600 Index slid 0.9%.
The euro and pound are being supported by the broader global focus on diverging performance between emerging- and developed-market currencies, said Ian Stannard, strategist at Morgan Stanley. That the strength won’t last as attention turns to the Fed, he said.
Gains in the euro will likely be limited to $1.3460, he said, while sterling is likely to top out at $1.5750, from $1.5670.
The greenback declined after the Federal Reserve Bank of Chicago’s national activity index for July was minus 0.15 from a revised minus 0.23 in June. A Bloomberg survey forecast a reading of minus 0.10. A number below zero indicates below-trend growth in the national economy.
The Fed will publish minutes of its July meeting tomorrow that may offer clues as to whether policy makers will start reduce their $85 billion of monthly bond purchases as soon as their gathering in September. The Federal Open Market Committee holds its next meeting on Sept. 17-18.
“It feels like it’s still a guessing game for the Fed tapering,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview. “It’s been fairly data stagnant the last couple of days. You haven’t really seen anything in particular more than the dollar just taking a beating.”
Japan’s currency rose 2.6% in the past month, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The euro gained 1.1%, while the dollar dropped 1.1%.
India’s rupee dropped 0.2% to 63.23 per dollar after slumping to a record 64.12.
Indonesia’s currency fell 1.9% to 10,685 per dollar after sliding to 10,728, the weakest since April 2009. The rupiah is the only currency within an expanded basket of major currencies to have declined against the dollar every August for nine years. It’s down 4.5% since July 31.
The Australian and New Zealand currencies slid after comments from the nations’ central banks.
Minutes released today of the Reserve Bank of Australia’s Aug. 6 meeting signaled further interest-rate cuts remain a possibility.
Reserve Bank of New Zealand Governor Graeme Wheeler announced lending restrictions to curtail house prices and said the currency is “over-valued relative to what would be sustainable long-term.”
The kiwi tumbled 1% to 79.87 U.S. cents, while the Aussie lost 0.4% to 90.71 cents.
Norwegian gross domestic product, excluding oil, gas and shipping, increased 0.2%, after expanding a revised 0.6% in the first quarter, Oslo-based Statistics Norway said. Growth was seen at 0.7%, according to median estimate in a survey of 13 economists by Bloomberg.
“After this number, a rate cut is not out of the question anymore, as some have argued,” said Kjersti Haugland, an analyst at DNB ASA in Oslo.
Norway’s krone tumbled as much as 1.5% to 8.0111 per euro, the weakest level since July 8, and depreciated 0.6% to 5.9562 against the dollar.