The dollar rose against the euro and the yen amid speculation global central banks won’t be quick to add stimulus and as yields on U.S. Treasuries reached the highest level in more than a month, attracting investors.
The euro slid versus most major peers after economists in an European Central Bank survey cut their 2013 growth forecast to 0.6 percent from 1 percent. While the ECB and the Federal Reserve signaled last week there may be more steps to spur economic growth, they refrained from taking action. The extra yield for investing in U.S. two-year debt versus comparable Japanese securities climbed, and U.S. stocks fluctuated.
“There’s a lot of talk from central banks, but no actions,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a telephone interview. “The risk momentum that we’ve been experiencing ever since the Fed and the ECB stepped up their rhetoric is becoming slightly deflated.”
The euro dropped 0.6 percent to $1.2293 at 3:19 p.m. New York time in its third daily loss. The 17-nation currency declined 0.4 percent to 96.60 yen, after rising earlier as much as 0.3 percent. The greenback rose 0.2 percent to 78.59 yen.
Treasury two-year note yields touched 0.28 percent, the highest since July 6. Japanese two-year government debt yielded less than 0.1 percent for a difference of 18 basis points, or 0.18 percentage point, almost the most since July 5. U.S. 10- year yields reached 1.73 percent, the highest since May 30.
The Standard & Poor’s 500 Index (SPX) was up 0.1 percent after falling 0.2 percent. It gained for the past four days.
Deficit Narrows
Japan’s currency erased an earlier gain versus the dollar after data showed the U.S. trade deficit narrowed more than forecast as a drop in crude oil prices helped cut the nation’s import bill. The gap shrank 11 percent in June to $42.9 billion, the smallest since December 2010, from $48 billion in May, Commerce Department figures showed in Washington.
“The narrowing of the trade deficit and the components of it will help add to second-quarter GDP -- more economic growth,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, said in a telephone interview. “It helps risk sentiment a little bit, which usually hurts the yen.”
The currency appreciated earlier after the Bank of Japan (8301) refrained from adding stimulus at a policy meeting. The central bank kept its asset-purchase fund at 45 trillion yen ($574 billion) and lending facility at 25 trillion yen, according to a statement released in Tokyo. All 22 analysts surveyed by Bloomberg News predicted no change.
Biggest Loser
The yen declined 1.6 percent over the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar lost 1.1 percent, while the euro was little changed.
Capital has begun flowing out of the countries sharing the euro, signaling “another storm” may be about to break, according to Thomas Kressin of Pacific Investment Management Co., which manages the world’s biggest bond fund.
The euro lost 5 percent of its value since the beginning of May, on a trade-weighted basis, and about 8 percent against the dollar, according to Kressin, head of European foreign exchange at Pimco in Munich. That contrasts with earlier crisis periods when the euro held steady as capital flowed from peripheral nations into the core, Kressin said in a posting on the company’s website.
The economists surveyed by the ECB forecast the region’s economy will shrink 0.3 percent in 2012, compared with a 0.2 percent contraction predicted last quarter.
‘With Conviction’
If the shared currency can penetrate the $1.23 level “with conviction,” it would indicate the euro’s recent rally is losing momentum, Oanda’s Popplewell said. Such a move would probably lead the euro down to the $1.22 level, he said.
The euro has a long-term target of $1.10, Nick Sargen, chief investment officer at Fort Washington Investment Advisors Inc. in Cincinnati, said in a telephone interview. The firm oversees $40 billion.
“You have a lot of economies in the periphery that aren’t competitive,” Sargen said on Bloomberg Television’s “Lunch Money” in an interview with Stephanie Ruhle. “If they weren’t tied to the euro, they would’ve been depreciating long ago. The long-term process of adjustment points in the direction of eventual further weakness of the euro.”
The shared currency has a 40.9 percent chance of breaking up by year-end and a 56.1 percent chance of dissolving by the end of 2013, according to Dublin-based Intrade.com. The odds were 36.4 percent and 55.1 percent a week ago.
The Norwegian krone fell against all of its major counterparts, weakening as much as 1 percent to 5.9375 against the greenback in its biggest intraday drop since July 6.
Canadian Dollar
The Canadian dollar reached a record high against the euro after Bank of Canada GovernorMark Carney said the strength of the nation’s economy may require interest rates to be increased. The loonie, as the currency is nicknamed, climbed as much as 1 percent to C$1.2173 to the shared currency. It gained 0.2 percent to 99.24 cents per dollar.
Mexico’s peso rose against most major peers after an unexpected decline in claims forunemployment benefits in the U.S boosted the outlook for Latin America’s second-biggest economy. The U.S. is Mexico’s biggest trade partner. Initial jobless claims fell by 6,000 to 361,000 last week, compared with a Bloomberg survey that forecast an increase to 370,000.
The Mexican currency advanced 0.2 percent to 13.12 per dollar, boosting its rally this year to 6.2 percent, the biggest gain among the dollar’s 16 most-traded counterparts.
ECB officials are working on a plan to buy enough government bonds to ease the region’s financial turmoil, bank President Mario Draghi said after a policy meeting Aug. 2. Details will be released in coming weeks, he said. The ECB held its benchmark interest rate at a record low 0.75 percent.
The Fed said Aug. 1 after a meeting it “will provide additional accommodation as needed” to spur growth and employment. It refrained from action this month.
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