The dollar dropped to its lowest level this year against the yen on signs the world’s largest economy is losing momentum. The U.S. currency slid to a level weaker than $1.30 versus the euro for the first time since May as a U.S. report showed consumer prices fell in June for a third straight month and before data forecast to indicate ebbing consumer confidence. The yen rallied against all of its most-traded counterparts as investors sought refuge. “The theme of the soft patch of the U.S. recovery is playing into some of the weakness we’ve seen in the dollar,” said Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York The yen appreciated 0.7 percent to 86.82 per dollar at 8:50 a.m. in New York, from 87.40 yesterday, after reaching 86.52, the strongest level since Dec. 1. The yen gained 0.4 percent to 112.76 per euro, from 113.17. The dollar declined 0.3 percent to $1.2988 versus the euro, from $1.2950, after touching $1.3008, the weakest level since May 10. U.S. consumer prices slid 0.1 percent in June after a 0.2 percent decrease in the previous month, the Labor Department reported today. The decease matched the median forecast of 76 economists in a Bloomberg News survey. A gauge of consumer sentiment in the U.S. fell to 74 this month from 76 in June, according to a separate Bloomberg News survey of economists before today’s release of the Thomson Reuters/University of Michigan preliminary index. Market ‘Nervousness’ “There’s still a lot of nervousness in the market, and it seems the yen can do no wrong,” said Michael Derks, chief strategist in London at FXPro Financial Services Ltd., a foreign-exchange trader. The dollar has lost 2.6 percent against the euro this week and fallen 2.1 percent versus the yen. The euro has appreciated 0.6 percent versus Japan’s currency. Traders cut bets to 14 percent that the Fed will increase its benchmark rate by its December meeting, down from 27 percent odds a month earlier, according to CME Group Inc. futures. “The poor economic data has helped weaken expectations for any increases in U.S. interest rates,” said Yuichiro Harada, senior vice president of the foreign-exchange division in Tokyo at Mizuho Financial Group Inc., Japan’s second-largest publicly traded bank in terms of assets. “The market is gradually leaning toward a sell-the-dollar mode.” The yen rose against the dollar as the extra yield investors demand to hold Treasuries over Japanese debt shrank. The difference between two-year yields was 0.45 percentage point, compared with this year’s low of 0.44 percentage point, set on June 29. Narrowing Spreads “A narrowing in yield spreads between Japan and the U.S. notes also creates the basis for yen appreciation,” said Masaaki Kanno, chief economist in Tokyo at JPMorgan Chase & Co. and a former official at the Bank of Japan. New Zealand’s dollar dropped 1.8 percent to 71.66 U.S. cents and lost 2.7 percent to 62.01 yen as a report indicated slower inflation in the South Pacific nation. Consumer prices rose 0.3 percent last quarter, Statistics New Zealand said in Wellington today. The median forecast of economists was for a 0.4 percent gain. The Reserve Bank of New Zealand raised the official cash rate to 2.75 percent on June 10 in the first increase in three years. Traders are betting policy makers will boost the benchmark by 1.24 percentage points over the next 12 months, after wagering on a 1.30 percentage point advance at the start of the week, according to a Credit Suisse Group AG index.

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