Dollar Falls to Seven-Week Low as U.S. Economic Recovery Falters

The dollar slumped to its lowest level against a basket of major peers in seven weeks as reports this week highlighted speculation the U.S. economic recovery hasn’t fully gained traction.

The U.S. currency dropped for a third day versus the yen on bets the Federal Reserve will keep borrowing costs at almost zero after the economy shrank 2.9 percent in the first quarter. Sweden’s krona weakened to a 2 1/2-year low against the euro as retail sales data boosted supported forecasts for rate cuts when the Riksbank meets next week. The South Korean won advanced to the strongest since August 2008.

“It’s trundle-along speed in terms of the U.S. and while that continues, the Fed is going to be in no rush to start preparing the market for higher rates,” said Paul Robson, a senior foreign-exchange strategist at Royal Bank of Scotland Group Plc in London. “If it’s not doing that, the dollar tends to underperform somewhat.”

The ForexSQ Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, slipped 0.2 percent to 1,005.82 as of 12:31 p.m. in New York.

The dollar dropped 0.4 percent to 101.37 yen. The U.S. currency slipped 0.2 percent to $1.3635 per euro. The yen advanced 0.2 percent to 138.22 per euro.
Top Performers

New Zealand’s currency is the best performer of the month, advancing 3.2 percent, and the second-best performer of the year. The Norwegian krone lost the most this month, sliding 2.6 percent.

Sweden’s krona declined the most this quarter, falling 3.9 percent, followed by its Norwegian counterpart which slipped 2.3 percent. South Korea’s won added 5 percent during the same time period.

The won gained 0.3 percent to close at 1,013.60 per dollar in Seoul after official data today showed South Korea’s current-account surplus widened and foreign direct investment increased. It earlier touched 1,013.25, the strongest level since August 2008, and posted a 0.7 percent weekly advance.

“The reports are helping bolster expectations for more gains in the won,” said Hong Seok Chan, a Seoul-based currency strategist at Daishin Economy Research Institute. “Increasing foreign direct investments are a clear endorsement of confidence in Korea’s economic fundamentals.”
Rupiah Down

Sweden’s krona tumbled against most of its 16 major peers after a report showed retail sales dropped 0.7 percent last month, more than double the 0.3 percent slide predicted by economists surveyed by ForexSQ. Riksbank policy makers will announce their decision on rates on July 3.

The Swedish currency declined 0.1 percent to 9.1834 per euro after reaching 9.2122, the weakest level since November 2011. It was little changed at 6.7348 per dollar and headed for a third straight weekly decline, its longest losing streak since April.

New Zealand’s currency dropped 0.2 percent to 87.68 U.S. cents. It earlier climbed to 87.94, approaching the high of 88.43 set on Aug. 1, 2011, that was the strongest since exchange-rate controls were scrapped in 1985. The kiwi has risen 0.8 percent since June 20, heading for a fourth weekly gain, the longest streak since April 2013.

The yen gained amid speculation the Bank of Japan will refrain from boosting monetary stimulus after official data showed Japanese consumer prices rose last month at the fastest pace in more than three decades, while the unemployment rate fell to the lowest since 1997.
Yen Strength

The currency rose against all of its 16 major peers and, versus the dollar, traded below its 200-day moving average of 101.71 yen for a third consecutive day.

“Breaking through the 200 day-moving average is obviously a significant event as far as market activity is concerned,” Ian Stannard, head of European currency strategy at Morgan Stanley in London, said by telephone. “That opens the way for dollar-yen to come under some further pressure.”

U.S. government reports this week showed gross domestic product shrank more than previously estimated in the first quarter, while durable-goods orders unexpectedly declined in May. Citigroup Inc.’s U.S. Economic Surprise Index, a gauge of whether data beat or fell short of economists’ forecasts, dropped to minus 23.1 yesterday, the lowest since May 1.

Yields on benchmark 10-year Treasuries (USGG10YR) fell as much as two basis points, or 0.02 percentage point, to 2.51 percent, the lowest since June 2.

“It’s been a bad week in terms of the data released from the U.S., which has shown that the economy’s a lot weaker than people anticipated,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd. “That’s prompting investors to downgrade their outlook for growth this year in the U.S. and that’s leading to lower yields and a lower dollar.”