The Dollar Index fell to its lowest level in more than two years as the U.S. economy expanded in the first quarter at a slower rate than forecast, encouraging the Federal Reserve to keep borrowing costs low.
The yen appreciated versus most of its major counterparts after a report showed Japanese investors sold foreign assets last week. Brazil’s real was the biggest loser versus the dollar after the central bank said it will increase borrowing costs at a slower pace for a longer period than initially planned.
“The U.S. dollar looks very heavy, and people are looking for reasons to sell it,” said Firas Askari, head currency trader at Bank of Montreal in Toronto. “The momentum we did seem to be having in the U.S. economy seems to be hitting some headwinds, but the headwinds seem to be temporary. Best-case scenario: U.S. economy is lukewarm.”
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, dropped 0.5 percent to 73.187 at 12:25 p.m. in New York, from 73.519 yesterday, after touching 72.871, the lowest level since July 2008.
The New Zealand dollar decreased for the first time in three days versus its U.S. counterpart after Reserve Bank Governor Alan Bollard called the currency’s recent advance “unwelcome” and policy makers left the official cash rate unchanged at a record low 2.5 percent. The kiwi dropped 1 percent to 80 U.S. cents after reaching 81.08 cents yesterday, the highest level since March 2008.
Weaker Real
Brazil’s real slid as much as 1.7 percent to 1.5963 versus the dollar after central bank minutes released today indicated that policy makers will raise interest rates at a slower pace for a longer period than initially planned.
The yen rallied as Japanese investors were net sellers of foreign bonds during the week ended April 22. The total net sale was 162.8 billion yen ($2 billion yen).
“The yen is firmer today because it now seems that there is more of a potential for repatriation back into the economy, which would drive up demand,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York “Over the long term, the BOJ is going to continue to ease policy, which will keep the yen soft and in this range of 81 to 83.”
The U.S. currency fell against the euro and yen after the Commerce Department reported that gross domestic product rose at a 1.8 percent annual pace in the first quarter after a 3.1 percent rate of expansion in the last three months of 2010. The median forecast of 80 economists in a Bloomberg News survey was for a 2 percent pace of growth.
Dollar Versus Euro
The dollar depreciated 0.2 percent to $1.4817 versus the euro, from $1.4788, after sliding to $1.4882, the weakest level since December 2009. The greenback slid 0.7 percent to 81.56 yen, from 82.16. The yen rose for the first time in five days against the euro, climbing 0.5 percent to 120.83.
The Dollar Index fell for an eighth day in its longest losing run since March 2009 after Bernanke signaled yesterday in his first press conference following a policy decision that the central bank will likely continue reinvesting maturing debt after its $600 billion bond-buying program expires in June.
The gauge may rebound as technical indicators suggest the drop in the U.S. currency will be hard to sustain, according to Bank of Tokyo.
The Williams %R indicator for the measure was at minus 93.6359 on a weekly basis, exceeding the threshold of minus 80 that some traders see as a sign an asset’s price has fallen too fast and may reverse course.
Technical Indicator
Williams %R, developed by the trader Larry Williams, calculates the difference between a security’s most recent closing price and its highest high price, relative to its price range over a given time period.
The 14-day relative strength index for the Dollar Index dropped to 23.51, the lowest level since Oct. 14 and below the level of 30 that signals an asset may be due for a rebound.
The dollar has lost 4.9 percent in the past month, extending this year’s decline to 7.1 percent, according to Bloomberg Correlation-Weighted Currency Indexes, which track the foreign exchange of 10 developed nations. The yen has fallen 4.6 percent in the past month and has lost 7.5 percent this year.
Australia’s dollar appreciated as much as 0.7 percent to $1.0948, the highest since the currency began trading freely in 1983, as traders boosted bets that the central bank will increase borrowing costs.
A Credit Suisse Group AG index based on swaps indicated the Reserve Bank of Australia will raise its 4.75 percent cash target by 25 basis points, or 0.25 percentage point, over the next 12 months, compared with 19 basis points a week earlier.
To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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