Dollar drops from 4-month high as Treasury yields pare gains

The dollar declined (NYBOT:DXH14) from a four-month high amid Treasury yields at an almost six-week low before the Federal Reserve meets next week to determine whether to continue scaling back stimulus.

The U.S. currency touched the highest level since September before reports this week that economists said will show manufacturing growth accelerated while existing-home sales rebounded. The Canadian dollar weakened to the least against the greenback since 2009. The yen reached the lowest in a week as the Bank of Japan began a two-day meeting amid speculation it will extend stimulus to counter the impact of a sales-tax increase.

“The 10-year Treasuries (CBOT:ZNH14) coming off some highs are behind the dollar losing some steam from overnight,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc, said in a phone interview. “The dollar is generally following interest-rate markets.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, advanced 0.1% to 1,034.06 at 3:49 p.m. New York time. It touched 1,037.75, the highest since Sept. 6.

The dollar rose 0.2% to 104.34 yen after adding 0.6%, the biggest increase since Jan. 14. The U.S. currency traded at $1.3562 per euro after adding as much as 0.3%. The 18-nation shared currency rose 0.2% to 141.50 yen.

Treasury 10-year note yields traded little changed at 2.82 after touching 2.87%. The yield fell to 2.8157% on Jan. 17, the lowest since Dec. 11.

Real, Lira

Brazil’s real decreased versus all but three of 31 major peers amid speculation that accelerating inflation in the nation will spur the central bank to extend borrowing cost increases. The currency slipped 0.7% to 2.3606 per dollar after declining 1.1%, the most since Jan. 8.

The Turkish lira fell to a record after its central bank left interest rates unchanged, failing to tackle an inflation rate it said will remain above target. The currency plummeted as much as 1.3% to 2.2691 per dollar before trading down 0.5% at 2.2519.

Thailand’s baht fell as Moody’s Analytics Inc. cut its forecast for the country’s 2014 gross domestic product growth to 3.2% from 5.3%. The currency depreciated 0.3% to 32.891 per dollar after decreasing 0.4%.

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