BLBG: Dollar Declines From 11-Month High Before Yellen; Krone Rallies
The dollar fell from the highest in 11 months versus the euro before Federal Reserve Chair Janet Yellen speaks tomorrow at a meeting of central bankers in Jackson Hole, Wyoming.
The U.S. currency rallied yesterday after minutes of the July Fed meeting showed policy makers raised the possibility they may raise interest rates sooner than anticipated. Norway’s krone gained the most in more than a week after the nation’s economy expanded more in the second quarter than analysts estimated. The pound declined to the lowest level in four months, while China’s yuan dropped the most in two months.
“We did get sort of a message from the Fed yesterday and now we have to wait for a follow-up from Yellen, but she’s probably going to stay the course at this point,” Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York, said in a phone interview. “We really need to get a time schedule from the Fed for a bigger dollar rally to happen.”
The U.S. dollar slid 0.1 percent to $1.3271 per euro at 9:36 a.m. in New York after appreciating to $1.3242, the strongest level since Sept. 10. The greenback was at 103.71 yen after advancing to 103.96, the highest since April 4. The euro was at 137.64 yen.
Dollar Measure
The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, was down 0.1 percent to 1,027.28 after reaching 1,029.64, the highest since Feb. 4.
Technical indicators show the dollar’s gains may have come too fast. The currency’s 14-day relative-strength index against the yen rose to 77, while the equivalent gauge versus the euro climbed to 75, both above the level of 70 that some traders see as signaling an asset is overbought and may be about to reverse course.
“Because the U.S. currency has surged so quickly, further gains could come slower,” said Tomohito Katagiri, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services. “But at the moment, I can’t find any reason to sell the dollar.”
China’s yuan fell 0.16 percent, the most since June 16, to 6.1514 per dollar. The People’s Bank of China cut its daily fixing by 0.08 percent to 6.1632 per dollar today, the most since July 4.
China Economy
The preliminary Purchasing Managers’ Index for August in China came in at 50.3, according to HSBC Holdings Plc and Markit Economics data released today. The reading, which fell short of all 22 estimates in a Bloomberg survey, compares with July’s 51.7 that was the fastest since January 2013. A reading above 50 indicates expansion.
The manufacturing figure is weighing on sentiment, said Tommy Ong, executive director of treasury and markets at DBS Bank Hong Kong Ltd. “The dollar’s strength is also adding downward pressure on the yuan. However, the flash PMI shouldn’t be the trigger point for a weakening trend. The yuan should still be on its trajectory for gradual and mild appreciation.”
Norway’s krone gained versus all 31 of its major counterparts after data showed the nation’s economy grew 1.2 percent in the three months through June, after expanding 0.5 percent in the first quarter. Economists forecast 0.6 percent growth, according to the median estimate in a Bloomberg survey.
The krone appreciated 0.6 percent to 8.1635 per euro, reaching the biggest gain since August 11. It climbed 0.7 percent to 6.1533 per dollar.
Pound Down
The U.K. currency weakened to the lowest level since April against the dollar even as U.K. retail sales rose more in July than economists forecast. Sales volumes excluding auto fuel increased 0.5 percent from June, when they fell 0.1 percent, the Office for National Statistics said. The median forecast in a Bloomberg survey of analysts was for a 0.4 percent increase.
The pound was little changed at $1.6588 after earlier declining to $1.6564, the lowest since April 4.
Futures traders saw about a 52 percent chance the Fed will raise its benchmark interest rate to at least 0.5 percent by July. The central bank has kept its benchmark rate at almost zero since December 2008.
“Many participants noted that if convergence toward the committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated,” the minutes of the Fed’s July 29-30 meeting showed.
Dollar Positions
“The minutes were a green light to add to dollar long” positions, Stephen Gallo, the European head of currency strategy at Bank of Montreal in London. “It favors dollar divergence. I fear that if we get another three to four weeks of this dollar strength and upside in U.S. yields the market will get ahead of itself in viewing the Fed as hawkish.” A long position is a bet an asset will rise.
The dollar’s gains may be limited to reaching $1.3150 per euro in the next four weeks, BMO’s Gallo said.
The dollar has strengthened 1.7 percent in the past month, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after Norway’s krone. The euro fell 0.4 percent and the yen declined 0.9 percent.
To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net; Eshe Nelson in London at enelson32@bloomberg.net
To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Paul Cox, Kenneth Pringle
