BLBG: Dollar Weakens Amid Speculation on Bernanke Report
The dollar fell versus the yen and euro amid speculation Federal Reserve Chairman Ben S. Bernanke will seek to damp investor expectations of a reduction in stimulus when he speaks to Congress tomorrow.
Europe’s 17-nation currency rose for the first time in three days against the dollar even after data showed German investor confidence unexpectedly fell. India’s rupee rose to a two-week high after its central bank raised interest rates. Australia’s dollar climbed against all of its 16 most-traded peers as investors pared bets the Reserve Bank will cut interest rates after the minutes of its last meeting released today. Bernanke said July 10 the U.S. economy still needs stimulus.
“Most of the dollar move is position-related right now,” Mike Moran, a senior currency strategist at Standard Chartered Plc in New York, said in a telephone interview. “The market is clearly overextended in long-dollar positions. The risk-reward certainly doesn’t favor being long dollars going into the meeting.” A long position is a bet an asset will rise in value.
The U.S. currency depreciated 0.5 percent to 99.41 yen at 11:17 a.m. New York time, and weakened as much as 0.6 percent. The dollar lost 0.5 percent to $1.3129 per euro. The shared European currency was little changed at 130.51 yen.
JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, was at almost a one-month low. The gauge was little changed at 10.53 percent after dropping to 10.47 percent on July 9, the lowest since June 18. The average this year is 9.32.
Real Declines
Brazil’s currency fell after a report showed inflation slowed, damping bets the central bank will increase borrowing costs at a faster place. The real weakened 0.9 percent to 2.2391 per dollar after gaining 0.5 percent earlier and rallying 2.1 percent yesterday in the biggest jump since June 2012.
The rupee gained after the Reserve Bank of India increased the marginal standing facility rate and the bank rate to 10.25 percent from 8.25 percent late yesterday in Mumbai, according to a statement on its website. The monetary authority also said it will conduct open-market sales of government debt totaling 120 billion rupees ($2 billion) on July 18, a step that would drain cash from an economy expanding at the slowest pace in a decade.
The Indian currency appreciated 1 percent to 59.3200 per dollar, according to prices from local banks compiled by Bloomberg. The currency, which fell to a record 61.2125 on July 8, touched 59.1250, the strongest level since July 1.
Sterling slid against most major peers after a report showed U.K. consumer-price inflation accelerated less in June than economists forecast. The currency depreciated 0.4 percent to 86.88 pence per euro and was little changed at $1.5111 after increasing 0.3 percent earlier.
Options Trading
Trading in over-the-counter foreign-exchange options totaled $16 billion, compared with $31 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-Chinese-yuan exchange rate amounted to $3.8 billion, the largest share of trades at 24 percent. Dollar-yen options totaled $3.2 billion, or 20 percent.
Dollar-yuan options trading was 145 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 32 percent below average.
Bernanke Report
Bernanke is scheduled to deliver his semi-annual monetary policy report to Congress this week, starting tomorrow at the House Financial Services Committee. The Fed purchases $85 billion of Treasuries and mortgage debt each month as part of its quantitative-easing program to cap borrowing costs.
While Bernanke last week damped speculation the central would slow its buying, minutes released the same day of the Fed’s last policy meeting showed “about half” of participants indicated “it likely would be appropriate” to end the purchases late this year.
“The market is positioning itself for a dovish Bernanke tomorrow, so the dollar therefore is on the defensive,” said Jane Foley, a senior currency strategist at Rabobank International in London.
The dollar pared losses versus the yen after the U.S. consumer-price index rose 0.5 percent in June, the most in four months, Labor Department figures showed. The gauge gained 1.8 percent from a year earlier, versus the Fed’s 2 percent target.
The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, fell 0.4 percent to 1,032.56.
The euro pared a gain versus the U.S currency after the ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations fell to 36.3 this month from 38.5 in June. A Bloomberg survey forecast a rise to 40.
Aussie Climbs
Australia’s inflation outlook, which is slightly higher because of a weaker currency, could still provide some scope for further easing, the minutes of the central bank’s July 2 meeting showed. Swaps data compiled by Bloomberg show traders see a 54 percent chance of the central bank cutting its key interest rate next month, down from 65 percent yesterday.
“People were probably positioned a little short going into the minutes expecting a bit more dovishness,” said Peter Dragicevich, a Sydney-based currency economist at Commonwealth Bank of Australia. (CBA) A short position is a bet an asset will fall.
The Aussie dollar jumped 1.2 percent to 92.10 U.S. cents.
The South Pacific currency slid 9.3 percent in the past six months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar gained 5.5 percent, the biggest win, while the yen lost 7.3 percent.
To contact the reporters on this story: Joseph Ciolli in New York at jciolli@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net
