Price swings in the dollar against the yen measured by options fell to a record as signs of an uneven U.S. economic recovery fueled bets the Federal Reserve will keep borrowing costs at unprecedented lows.
The U.S. currency (NYBOT:DX) was poised for declines this quarter versus most of its 16 major peers before reports this week forecast to show new-home sales slowed and the economy contracted more than earlier estimated. The pound (CME:B6M14) fell after Bank of England Governor Mark Carney damped speculation of a rate rise. South Africa’s rand (CME:T6N14) climbed to the strongest in three weeks amid a deal to end a platinum mining strike, while Russia’s ruble (CME:R6N14) rallied to the strongest level since January.
“Volatility is at a record low,” said Neil Jones, the London-based head of hedge-fund sales at Mizuho Bank Ltd. “Expectations for tapering haven’t played themselves out like we expected them to do, and the other force the other way is a yield play, the carry trade. Those two counteract and consequently dollar-yen doesn’t do too much.” Carry trades allow investors to profit from differences in interest rates.
Three-month implied volatility in dollar-yen was at 5.745% at 9:07 a.m. New York time after declining to 5.715%, the lowest level since Bloomberg began compiling the data in December 1995.
The dollar was little changed at 101.92 yen (CME:J6M14), having declined 1.3% since March 31. The greenback slid 0.1% to $1.3619 per euro (CME:E6M14). The 18-nation common currency was at 138.80 yen from 138.67 yesterday.
South Korea’s won (CME:KZN14) and the Canadian dollar (CME:D6M14) have been the best performers versus the greenback of 16 major peers this quarter, adding 4.6% and 3% respectively. Sweden and Norway’s currencies lost the most against the dollar, declining 3.6% and 1.8% since March 31.
The Norwegian krone (CME:NRM14) has declined the most this month while the New Zealand dollar(CME:N6M14) is the biggest gainer, advancing 2.4%. The ruble added the most versus the dollar of 24 emerging-market currencies this month, rising 3.2%.
Russia’s currency added 0.9% to 39.3180 today against the central bank’s dollar-euro basket, used to smooth currency fluctuations that can hurt exporters.
Pro-Russian separatists in eastern Ukraine called a cease- fire in fighting against government forces that’s left hundreds dead, matching a truce announced three days earlier by President Petro Poroshenko. Russian companies pay mineral extraction and profit taxes this week and next, prompting exporters convert their earnings and boosting the ruble.
South Africa’s rand rose for a third day, the longest winning streak since May 23, after the world’s three largest platinum companies agreed to sign a deal with the main union representing 70,000 striking workers to end the longest work stoppage in South African mining history.
The currency advanced 0.3% to 10.5625 per dollar after reaching 10.5301, the strongest since May 30.
New-home sales in the U.S. rose 1.4% in May after climbing 6.4% the prior month, a Bloomberg News survey showed before the Commerce Department report today. Gross domestic product shrank 1.8% in the first quarter, more than the initial reading of a 1% contraction on May 29, according to a separate survey before the data are released tomorrow.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.