The dollar slid to a two-year low against the euro (FOREX:EURUSD) as concern that U.S. growth was hampered by a government shutdown earlier this month fueled bets the Federal Reserve will delay slowing its stimulus program until next year.
The greenback briefly cut losses against the yen and the European currency even as more Americans than forecast filed jobless-benefit applications last week. The euro trimmed a gain versus Japan’s currency after industry data showed manufacturing and services output in the currency bloc expanded this month less than forecast. Norway’s krone advanced after the central bank said the currency has weakened since its last policy decision and left its key interest rate unchanged.
“March, June 2014-zone tapering still remains intact,” Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London, said of outlook for reducing Fed stimulus. The employment data “could have been worse, so there’s probably a little bit of dollar demand kicking it. At the same time, it’s going to do nothing to adjust tapering expectations.”
The dollar depreciated 0.3% to $1.3816 per euro at 9:30 a.m. New York time and reached $1.3825, the weakest since November 2011. It fell 0.1% to 97.30 yen after touching 97.16 yesterday, the lowest level since Oct. 9. Europe’s shared currency rose 0.2% to 134.43 yen.
The greenback may fall to $1.40 versus Europe’s shared currency by the end of year, Jones said in a phone interview.
The partial U.S. government shutdown that began Oct. 1 amid a political deadlock in Washington over spending probably trimmed 0.25 percentage point from fourth-quarter economic growth and cost 120,000 jobs in October, President Barack Obama’s chief economic adviser said on Oct. 22.
The government reopened Oct. 17 after a last-minute deal funded operations through Jan. 15 and extended U.S. borrowing authority to Feb. 7, from Oct. 17, averting a potential default.
Initial jobless claims in the U.S. decreased by 12,000 to 350,000 in the week ended Oct. 19 from a revised 362,000 in the prior period, a Labor Department report showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg called for a decrease to 340,000. Applications in California remained elevated and analysts weren’t able to determine how many non-federal workers filed due to the government shutdown, a Labor Department spokesman said.
The Fed will delay tapering its $85 billion of monthly bond purchases until March, according to the median estimate of 40 economists surveyed by Bloomberg on Oct. 17-18. The central bank buys Treasuries and mortgage-backed securities to put downward pressure on long-term yields and spur growth, a move that tends to debase the greenback.
The dollar slid 1.3% in the past month, making it the second-worst performer, after the Canadian dollar, among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro strengthened 1.4%, while the yen advanced 0.3%.
“While the Fed’s on hold and still pumping liquidity in, the dollar’s going to be soft against everything,” said Jeremy Hale, head of macro strategy at Citigroup Inc. in London. “There’s a feeling that the debacle in Congress damaged the economy a little bit.”
An index based on a survey of purchasing managers in the euro-area manufacturing and services industry dropped to 51.5 from 52.2 in September, London-based Markit Economics said. That’s below the median forecast of 52.4 in a Bloomberg News survey of economists. A reading above 50 indicates expansion.
The index for services in Germany declined to 52.3 from 53.7, while the French gauge fell to 50.2 from 51, separate reports showed.
“This data is a wake-up call, showing that there are events that can still knock the euro,” said Jane Foley, a senior currency strategist at Rabobank International in London. “We’ve seen the euro push higher on the back of dollar weakness and the dollar will remain on the back foot, so the fall in the euro will probably be limited.”
Norway’s krone climbed to the highest in a month versus the dollar after the nation’s central bank said the currency has weakened since policy makers last met.
“The krone has depreciated,” Governor Oeystein Olsen said in a statement on the central bank’s website. “In other respects, economic developments both in Norway and abroad have been broadly in line with expectations. The key policy rate has therefore been kept unchanged.”
The Oslo-based central bank left its key deposit rate at 1.5%. After appreciating against the euro in 2011 and 2012, the krone lost 11% this year following warnings from the central bank that it’s ready to act to stem gains.
The krone “has overshot the fundamentals to the downside in our view,” said Alvin Tan, a director of foreign-exchange strategy at Societe Generale SA in London. “The statement is quite balanced. The krone appears to be rising moderately.”
The krone appreciated 0.3% to 8.1342 per euro and advanced 0.5% to 5.8895 per dollar. It reached 5.8797 to the greenback, the strongest since Sept. 20.
Societe Generale recommends buying the krone against the euro and betting on an advance to 7.85 by year-end, Tan said. The krone last traded at that level on Sept. 19, according to data compiled by Bloomberg.