BLBG:Dollar Trades Near Lowest This Month Versus Euro on Fed
The dollar snapped a two-day decline versus the euro before a U.S. report that economists said will show the drop in house prices slowed, undermining the case for more stimulus from the Federal Reserve.
The U.S. currency strengthened from the lowest level this month against its 17-nation European counterpart before another report forecast to show U.S. consumer confidence stayed near the highest level in a year. The Dollar Index dropped 0.9 percent during the past two days amid speculation the Federal Reserve will start a third round of quantitative easing, or QE3. The pound pared an advance after a report showed U.K. retailers expect conditions to worsen next month.
“The only thing that could really help the dollar today is surprisingly strong data,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York. “There is a temptation to see if the euro can test its most recent highs around the $1.3450 level.”
The dollar strengthened 0.2 percent to $1.3335 per euro at 8:18 a.m. New York time. The U.S. currency added 0.1 percent to 82.92 yen. The euro fell 0.1 percent to 110.54 yen, after gaining 1.6 percent during the past two days.
The euro rose to as high as $1.3386 today, its highest since Feb. 29, when it reached $1.3486.
Economic Data
The S&P/Case-Shiller index of property values in 20 U.S. cities dropped 3.8 percent from January 2011, the smallest decline in three month, according to economists surveyed by Bloomberg News. Consumer confidence in March was 70.1, after rising to 70.8 last month, the highest in a year, a separate survey showed.
The implied volatility for three-month euro-dollar options, which indicates expected swings in the underlying currencies, was little changed at 9.95 percent. It reached 9.90 percent yesterday, the least since August 2008. The JPMorgan G7 Volatility Index (JPMVXYG7) has tumbled to 10.02 percent from 12.34 percent on Jan. 2.
“We think it’s too early” to buy euro-dollar volatility at these levels, because of lack of conviction in a strong trend between the two currencies, George Saravelos, a currency strategist at Deutsche Bank AG in London, wrote in a note to investors. “Even if the macro picture changes and affects volatility, this is unlikely to materialize until the end of April at the earliest,” when the next Fed policy meeting and the Greek general election occur, he wrote.
First Quarter
The yen has depreciated 10.6 percent this year, the worst performance among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar was fallen 2.8 percent, and the euro gained 0.3 percent.
The greenback weakened against 15 of its 16 major peers in 2012. Fed Chairman Ben S. Bernanke yesterday stoked speculation the central bank will embark on a third round of asset purchases, saying stimulative policy is still needed to reduce joblessness.
“Further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies,” he said in a speech in Arlington, Virginia.
“Bernanke indicated that the door is wide open to QE3,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “As long as the market think QE3 might happen, then that will be negative for the dollar. We have seen two spectacularly bad days for the dollar and now we are losing a bit of momentum.”
Fed Purchases
The Fed bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 to June 2011. The U.S. central bank has held its target interest rate at a range of zero to 0.25 percent since December 2008.
The 3.8-cent difference between the euro’s high in March of $1.3386 and its low at $1.3004 is the narrowest monthly trading range since July 2007.
“We’re in very quiet markets with most of the major currency pairs lacking direction at the moment,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “I don’t think this move for dollar weakness will be sustained.”
The euro halted a two-day advance against the yen after GfK SE (GFK) said German consumer confidence will decline for the first time in seven months in April as rising energy prices curb household spending power.
The Nuremberg-based market research company predicted today that its consumer-sentiment index, based on a survey of about 2,000 people, will slip to 5.9 from a 12-month high of 6 in March. Economists forecast an unchanged reading, according to the median of 26 estimates in a Bloomberg News survey.
The pound was little changed at $1.5972 and 83.66 pence per euro, after appreciating as much as 0.2 percent against its U.S. and European peers.
A measure of expected retail sales for April was at minus 4, indicating retailers expect a decline, London-based business lobby the Confederation of British Industry said in a report today.
To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
