Dollar Drops as Fed Signals Low Rates for Considerable Time

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Dollar Drops as Fed Signals Low Rates for Considerable Time

By Cecile Gutscher and Andrea Wong  Apr 30, 2014 5:12 PM ET  

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The dollar dropped for a fifth day against most major peers as the Federal Reserve said it will keepinterest rates at almost zero for a “considerable time” after its bond-purchasing program ends.

The euro rose against the U.S. currency as Spain’s forecasts for economic growth boosted speculation the European Central Bank will refrain from adding stimulus next week. Norway’s krone climbed against all 16 of its top counterparts as retail sales unexpectedly increased in March. The greenback declined versus the yen after a report showed U.S. economic growth stalled in the first quarter amid harsh winter weather.

“The Fed overall is still very dovish as an institution and kept its forward guidance on the fed funds rate unchanged,” said Brian Daingerfield, currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities Inc. in Stamford, Connecticut. “After the Fed made a myriad of changes in their March statement, everyone always expected the April statement would be a lot less exciting.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, fell 0.3 percent to 1,008.01 at 5 p.m. in New York. It’s the gauge’s second five-day slide in April, in which it fell 0.8 percent.

The euro rose 0.4 percent to $1.3867 after dropping 0.3 percent yesterday. The yen strengthened 0.4 percent to 102.24 per dollar after touching 102.78 yesterday, the weakest level since April 8. It was little changed at 141.76 per euro.

Monthly Leaders

The won led gainers versus the dollar this month, adding 3.1 percent, trailed by the Brazilian real’s 1.8 percent jump. New Zealand’s dollar and Sweden’s krona each fell 0.5 percent to pace decliners.

The real is the biggest winner this year, up 5.8 percent, followed by New Zealand’s kiwi, gaining 4.9 percent. The largest decliners are the dollars of Canada, down 3.1 percent, and Taiwan, off 1.4 percent.

The won touched 1,029.96 today, the strongest level since August 2008, before falling 0.3 percent to 1,033.22.

Norway’s krone surged after a report showed retail sales rose 1 percent in March, after rising 0.6 percent the previous month. The median estimate in a Bloomberg News survey was for an unchanged reading.

The currency added 1 percent to 5.9492 per dollar and gained 0.6 percent to 8.2499 per euro.

Benchmark Rate

The Fed has undertaken three rounds of bond buying since 2008 under the quantitative-easing stimulus strategy, swelling its balance sheet to a record $4.3 trillion. It had been purchasing $85 billion a month before the first cut in December.

“Growth in economic activity has picked up recently, after having slowed sharply,” the Federal Open Market Committee said in a statement following a meeting in Washington. “Household spending appears to be rising more quickly.”

Policy makers have held the main rate at zero to 0.25 percent since December 2008. Fed ChairJanet Yellen indicated after the FOMC’s last meeting on March 19 that the central bank may raise interest rates by the middle of next year with the U.S. economy showing signs of strengthening.

“The Fed upgraded household spending, but the Fed also said business investment edged down -- so the better outlook for consumption canceled out the weaker outlook for spending,” said Shahab Jalinoos, a senior currency strategist for UBS AG in Stamford Connecticut. “It means the low-volatility range trading for the U.S dollar will persist.”

Deutsche Bank AG’s volatility index, based on three-month options for nine major currency pairs, was at 6.13 percent, the lowest since July 2007, based on closing prices.

Winter Impact

The greenback declined earlier as gross domestic product grew at a 0.1 percent annualized rate from January through March, compared with a 2.6 percent gain in the prior quarter, figures from the Commerce Department showed. The median forecast of 83 economists surveyed by Bloomberg called for a 1.2 percent increase in economic growth.

“It confirms the fears we had that the severe winter weather really had an impact on U.S. businesses,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “We’re expecting a bounce-back in the spring.”

Payroll growth may have accelerated in April as companies remained upbeat about the economy’s prospects after a setback in demand caused by snowstorms and colder temperatures earlier this year. Employers added 215,000 workers, the most since November, economists project a May 2 report from the Labor Department will show.

Spanish Growth

The shared currency erased a decline of as much as 0.3 percent against the dollar after Spain’s Minister of Economy Luis de Guindos said in Madrid that GDP would grow 1.2 percent this year, 1.8 percent in 2015, 2.3 percent in 2016 and 3 percent in 2017.

The European Union’s statistics office in Luxembourg said the region’s annualized consumer-price inflation rate was 0.7 percent this month, compared with a more-than four-year low of 0.5 percent in March. The median estimate of analysts in a Bloomberg News survey was for a reading of 0.8 percent.

The ECB is seeking to keep inflation at just less than 2 percent. Central bank President Mario Draghi said last week the institution might start broad-based asset purchases if the inflation outlook worsens. Policy makers meet on May 8.

The euro has risen 6 percent in the past 12 months, according to Bloomberg Correlation Weighted Indexes, which track 10 developed-nation currencies. The dollar has gained 0.2 percent and the yen has dropped 4.9 percent.

BOJ Move

The yen climbed today as the Bank of Japan retained plans to increase the monetary base, or the cash in circulation plus reserves financial institutions have on deposit at the central bank, by up to 70 trillion yen ($685 billion) annually. Only one of the 35 economists surveyed by Bloomberg expected the BOJ to add to monetary easing today, according to a survey conducted April 16 to 21.

Policy makers said consumer prices excluding fresh food will increase 2.1 percent in the fiscal year for 2016, stripped of the impact of a sales-tax increase. The government lifted the consumption levy to 8 percent from 5 percent this month.

To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net; Cecile Gutscher in Toronto at cgutscher@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.netKenneth Pringle, Greg Storey