The dollar weakened against the euro for the first time in four days as stocks rose and Treasuries declined amid renewed demand for higher-yielding assets. The U.S. currency slid against the Australian and New Zealand dollars after China’s economic growth exceeded analysts’ estimates. It touched a record low against the Swiss franc before Federal Reserve Chairman Ben S. Bernanke was scheduled to testify in Congress amid political deadlock. The euro advanced as Italian and Spanish bonds rose for a second day. “There’s investor appetite and quite a bit of chatter in the market to look to equities as a lead today barring no more headlines from Europe,” said C.J. Gavsie, managing director for foreign exchange trading at Bank of Montreal in Toronto. “In the North American session earnings season may take over and calm investor fears on a global scale and draw some investor focus.” The dollar weakened as much as 1 percent against the euro to $1.4111, its biggest drop since June 3, and was at $1.4067 at 9:42 a.m. in New York. It reached $1.3837 yesterday, the strongest level since March 11. The Standard & Poor’s 500 Index was 0.6 percent higher and the yield on 10-year Treasuries increased four basis points to 2.92 percent. Swiss Strength Switzerland’s franc, which benefits in times of turmoil from the nation’s role as a stable, neutral financial center, strengthened to a record against the dollar, appreciating as much as 0.6 percent to 82.58 centimes, before trading at 82.67. Bernanke is scheduled to begin two days of testimony at 10 a.m. in Washington on monetary policy and the outlook for the economy with a visit to the House Financial Services Committee. A fiscal-policy deadlock threatens to reverse the decline in borrowing costs he gained through record stimulus. IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, including the euro, yen and pound, slid for a second day, shedding 0.1 percent. Fed policy makers disagreed about whether additional monetary stimulus will be needed, according to minutes of their meeting last month released yesterday. Fed Debate “A few members noted that, depending on how economic conditions evolve, the committee might have to consider providing additional monetary stimulus,” the Federal Open Market Committee said in the minutes of its June 21-22 meeting. The 17-nation currency advance 0.2 percent against a basket of nine major trading partners, according to Bloomberg Correlation-Weighted Indexes. It is the first gain in four days. Italian bonds rallied for a second day, pushing the yield on the 10-year security down 12 basis points, and easing concern that the region’s debt crisis may spread beyond Greece, Ireland and Portugal to larger economies. “The problems that we saw yesterday are just generally being ignored,” said Geoffrey Yu, a currency strategist at UBS AG in London. “If you look at the hard numbers, it’s still salvageable. It’s more than salvageable at this stage.” China’s gross domestic product increased 9.5 percent in the second quarter from a year earlier, the statistics bureau said in Beijing. Industrial output advanced 15.1 percent in June, the most since May 2010. Aussie Rises Australia’s dollar rose for the first time in four days, strengthening 0.8 percent to $1.0677, and gained 0.8 percent to 84.68 yen. China is the nation’s largest trading partner, consuming Australia’s raw material exports. The Thomson Reuters/Jefferies CRB Index of 19 Raw Materials advanced 0.2 percent and gold rose to a record in London and New York. New Zealand’s currency advanced 1 percent to 82.65 U.S. cents and gained against all its major counterparts after a report. China is the No. 1 destination for the nation’s exports. “Stronger Chinese growth and industrial production is helpful for the likes of the Aussie dollar,” said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole Corporate & Investment Bank in London. “The market is preoccupied with the Italian story. Maybe there’s a sense that some of the pessimism has been overdone.” Verbal Intervention The yen weakened after Japanese Finance Minister Yoshihiko Noda said its moves have been “a bit one-sided.” The yen dropped 0.7 percent to 111.48 per euro. Japan’s currency was little changed at 79.33 per dollar after gaining 2.5 percent in the previous three days. It appreciated to 78.50 earlier today, the most since policy makers jointly intervened in foreign-exchange markets in March. Japanese Chief Cabinet Secretary Yukio Edano echoed Noda’s comments, saying rapid foreign-exchange moves were not “desirable.” Group of Seven nations jointly sold Japan’s currency on March 18 after the yen surged to a postwar record of 76.25 per dollar the previous day, threatening the nation’s recovery from the March 11 earthquake and tsunami. “There is going to be a further flow into the yen, simply because it has been a funding currency in the recent past for a number of risk-on trades,” Simon Derrick, chief currency strategist at Bank of New York Mellon Corp., said in an interview in London yesterday. “When there is an unwind, naturally that money goes back.” To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net Paul Dobson in London at pdobson2@bloomberg.net. To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Source