BLBG:Dollar Declines Before Bernanke Senate Testimony Today
The dollar weakened against most major counterparts amid speculation 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 weakened after an unexpected decline in retail sales announced yesterday rekindled speculation the Fed is moving closer to a third round of asset purchases. The yen snapped three days of advances against the greenback as Finance Minister Jun Azumi warned the central bank would take action against currency strength if needed. Australia’s dollar rose as central-bank minutes 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 depreciated 0.1 percent to $1.2283 per euro at 7:49 a.m. New York time after falling to $1.2317, the weakest level since July 10. The yen dropped 0.2 to 79.06 per dollar, and fell 0.3 percent to 97.09 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
Retail sales fell 0.5 percent in June, the Commerce Department said yesterday. A gain was forecast by economists in a separate Bloomberg survey. The Labor Department will report today U.S. consumer prices were unchanged last month from May, when they slid 0.3 percent, according to a Bloomberg News 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 gains versus the dollar after 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,” 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 krona rose for the first time in five days against the euro as the Riksbank minutes showed “there were differences on how expansionary monetary policy should be.”
The central bank kept its benchmark interest rate at 1.5 percent this month, after two cuts since December, and signaled it may be prepared to lower rates again as Europe’s debt crisis weighs on growth in the largest Nordic economy.
‘Modestly Stronger’
“The krona is modestly stronger following the release,” BNP Paribas SA strategists led by London-based head of currency strategy for Europe Steven Saywell wrote in a note to clients. “A major policy issue for several members was how the unexpectedly strong development of the Swedish economy should be seen in relation to the increased concern about a weaker development in the euro area. However, we wouldn’t chase euro- krona lower from here.”
The krona gained 0.4 percent to 8.6114 per euro, and strengthened 0.5 percent to 7.0051 per dollar.
The euro has weakened 3.7 percent in the past three months, the worst performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 6.3 percent, and the dollar advanced 3.6 percent.
Japan’s currency halted a three-day advance versus the dollar after 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 Australian dollar rose for a third day against the U.S. currency 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 0.3 percent to $1.0287, and gained 0.7 percent to 81.36 yen.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
