The dollar touched a level below 86 yen for the first time this year and headed for a third straight monthly loss as a government report showed U.S. economic growth slowed in the second quarter.
The dollar touched a level below 86 yen for the first time this year and headed for a third straight monthly loss as a government report showed U.S. economic growth slowed in the second quarter.
The yen advanced to a one-week high versus the euro as investors sought refuge after Federal Reserve Bank of St. Louis President James Bullard said yesterday the U.S. is moving closer to Japanese-style deflation.
“The dollar has been on a sharp downturn in July,” said Jens Nordvig, a managing director of currency research in New York at Nomura Holdings Inc. “The key catalyst for the dollar would be a situation where the Fed moves clearly in a more dovish direction.”
The greenback dropped 0.5 percent to 86.38 yen at 2:09 p.m. in New York, from 86.79 yesterday, after reaching 85.95, the lowest level since Nov. 30. Japan's currency gained 0.6 percent to 112.78 per euro, from 113.51, after earlier touching 112.03, the strongest level since July 23. The dollar appreciated 0.2 percent to $1.3058 per euro, from $1.3079.
Canada's dollar rose versus all of its major counterparts as investors speculated that the Bank of Canada will extend increases in the target lending rate even after a government report showed the nation's economy grew 0.1 percent in May, a slower pace than analysts forecast.
The loonie, as the currency is also known, appreciated 0.7 percent to C$1.0399. It touched C$1.0256 on July 27, the strongest level since June 22.
Slower Growth
The U.S. economy grew at a 2.4 percent annual rate in the second quarter after a revised 3.7 percent increase in the first three months of the year, the Commerce Department reported today. The median forecast of 81 economists in a Bloomberg News survey was for a gain of 2.6 percent.
“Those who think we need additional stimulus for the economy will be bolstered by the decline from the first quarter to the second quarter,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago.
The worst U.S. economic recession since the 1930s was deeper than previously estimated, according to revised Commerce Department figures. The economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previous estimate of 3.7 percent.
The greenback pared its drop versus the yen today after the Institute for Supply Management-Chicago Inc. said its business barometer rose to 62.3 this month, more than the median forecast of economists in a Bloomberg News survey. Figures greater than 50 signal expansion.
Dollar in July
The dollar has fallen against all of its major counterparts in July, dropping 2.1 percent against the yen. It has slid 6.1 percent versus the euro, while the yen has lost 4.1 percent.
The Fed should resume purchases of Treasury securities if the economy slows and prices fall, Bullard said in a research paper released yesterday. Fed Chairman Ben S. Bernanke said in testimony before the Senate Banking Committee on July 21 that “the economic outlook remains unusually uncertain.”
The central bank said in its statement at the conclusion of its June policy meeting that “financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.” The Fed is next scheduled to release a policy decision on Aug. 10.
“The market is reacting in a risk-averse way since James Bullard's comments yesterday,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “This noted hawk has reversed his position and suggests quantitative-easing measures may be required to combat what he sees as deflation risks.”
Yen in 2010
The yen has advanced 11 percent this year in the biggest gain among developed-world counterparts, according to Bloomberg Correlation-Weighted Currency Indices. The euro has dropped 8 percent, while the dollar is up 2 percent.
Japan's factory output slid 1.5 percent in June from the previous month, when it gained 0.1 percent, the government said. The yen typically strengthens in times of uncertainty because Japan's trade surplus means the nation doesn't have to rely on overseas lenders.
The euro pared its biggest monthly increase versus the dollar since May 2009 as the currency failed to break through resistance, triggering selling, according to Danske Bank A/S.
The currency was unable to rally past $1.3125, the 38.2 percent Fibonacci retracement of the drop from $1.5144 on November 2009 to $1.1877 last month, according to John Hydeskov, senior currency analyst at Danske Bank in Copenhagen.
The euro gained 1.1 percent this week versus the dollar after the Committee of European Banking Supervisors said July 23 that only 7 of 91 European Union banks failed stress tests.
Spain, with the region's highest unemployment rate at 20 percent, will probably lose its top Aaa credit rating, Steven A. Hess, senior credit officer at Moody's Investors Service, said yesterday in an interview in Sydney. The rating company put the nation under review for possible downgrade in June.
