BLBG:Dollar Declines Before Bernanke Senate Testimony Today
The dollar weakened for a third day versus the euro amid speculation that Federal Reserve Chairman Ben S. Bernanke will hint at additional stimulus when he speaks to Congress about monetary policy starting today.
The U.S. currency dropped against most major peers after an unexpected drop in retail sales yesterday. The yen depreciated versus all 16 of its major peers as stocks rose. The euro fell against Sweden’s krona as Riksbank minutes showed Governor Stefan Ingves said the common-currency area’s economic problems are structural. Australia’s dollar gained as minutes from its central-bank meeting said the economy has some “momentum.”
“People are just looking at Bernanke and thinking of an increased possibility” of stimulus, perhaps at the September meeting, said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. That’s “negative for the dollar and positive for risk appetite. We favor the upside in euro-dollar.”
The dollar dropped 0.2 percent to $1.2299 per euro at 10:36 a.m. in London after depreciating to $1.2317, the weakest level since July 10. The greenback was 0.2 higher against the yen at 79.05. Japan’s currency fell 0.4 percent to 97.22 per euro.
Bernanke will deliver his semi-annual report on the economy and monetary policy to the Senate Banking Committee today. He will testify to the House Financial Services Committee tomorrow.
Fed Bank of Kansas City President Esther George said in a speech yesterday that the U.S. economy probably won’t grow much faster than 2 percent this year, held back by caution among consumers and businesses.
Consumer Prices
A U.S. Labor Department report will show the consumer-price index was unchanged last month from May, when it slid 0.3 percent, according to a Bloomberg News survey. Retail sales fell 0.5 percent in June, the Commerce Department said yesterday. A gain was forecast by economists in a separate Bloomberg survey.
“If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Bernanke said after the Fed’s most recent policy meeting on June 20. “Additional asset purchases would be among the things that we would certainly consider.”
The Fed bought $2.3 trillion of bonds in two rounds of so- called quantitative easing from 2008 to 2011, seeking to cap borrowing costs and stimulate the economy. Last month, it expanded the program known as Operation Twist that replaces short-term Treasuries in its portfolio with longer-term debt.
ZEW Report
The euro pared its gain versus the dollar and then rebounded even as a report showed German investor confidence declined for a third month in July. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to minus 19.6 from minus 16.9 in June. Economists had forecast a drop to minus 20, according to a Bloomberg News survey.
“The euro will remain on a downtrend in the medium to long term,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “Compared with the U.S., the euro region’s economy has more scope for monetary easing and is more prone to downside risks.”
The common-currency weakened 0.2 percent to 8.6232 Swedish kronor after the Riksbank published minutes of its July 3 meeting, when it also discussed inflation and unemployment, according to a statement today.
Streak Ends
The euro has fallen 3.6 percent in the past three months, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 6.2 percent and the dollar advanced 3.6 percent, while the Swiss franc dropped 3.5 percent.
Japan’s currency halted a three-day advance versus the dollar after Japanese Finance Minister Jun Azumi said gains in the currency were “speculative” and officials will “take decisive action if needed.”
The yen appreciated to 78.69 per dollar yesterday, the strongest level since June 18.
“The threat of officials intervening in Japan’s currency market always remains,” said Sacha Tihanyi, a senior currency strategist at Scotiabank in Hong Kong, a unit of the Bank of Nova Scotia. (BNS) “They’ve done it in the past. The credibility is there that they’ll do it again.”
The Australian dollar rose for a third day against the greenback after the central bank released the minutes of its July 3 policy meeting.
“Consumption was being supported by a favorable labor market,” the central bank said. “With recent signs that the domestic economy had a little more momentum than had earlier been indicated, members saw no need for any further adjustment to the cash rate.”
Australia’s dollar advanced 0.4 percent to $1.0286.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net.
To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net
