The dollar declined for the first time in three days after Federal Reserve officials said a worldwide economic slowdown may delay interest-rate increases, damping demand for the U.S. currency.
The Bloomberg Dollar Spot Index has lost 1.4 percent since reaching the highest since June 2010 on Oct. 3. Brazil’s real led currency gains as a voter poll indicated that opposition candidate Aecio Neves would win in the election runoff this month. Australia’s currency climbed from almost a four-year low as its biggest trading partner China reported better-than-forecast export growth and an unexpected pick-up in imports. China’s yuan rose as the central bank raised the currency’s reference rate.
“The Stanley Fischer comments are relevant, we’ve seen several comments from last couple of weeks regarding the potential impact of the dollar,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “We’ve gone into Q4 and we’ve seen a big substantial move post the summer and the trend offered opportunities for people to put some money into the coffers. There’s a great degree of profit preservation as we go into Q4.”
The Bloomberg Dollar Spot Index dropped 0.5 percent to 1,064.80 as of 10:33 a.m. New York time. The index slid 0.8 percent last week after ending Oct. 3 at 1,078.65, the most since June 2010, based on closing prices.
Brazilian Election
The dollar weakened 0.5 percent to $1.2689 per euro. It also declined 0.4 percent to 107.26 yen and touched 107.06, the weakest level since Sept. 16. Japan’s currency was little changed at 136.13 per euro.
The real rallied 1.5 percent to 2.3935 per dollar as a poll published on the website of IstoE magazine showed Neves leading President Dilma Rousseff 52.4 percent to 36.7 percent.
“The political debate tends to remain the main driver for currency trading,” Deives Ribeiro, a foreign-exchange manager at Fair Corretora de Cambio e Valores in Sao Paulo, said by phone. “Investors liked to see Neves ahead of Rousseff.”
The Aussie rose versus all except one of its 31 major counterparts as a Chinese report showed imports increased 7 percent last month from a year earlier, compared with the median estimate for a 2 percent decline. China is Australia’s largest trading partner.
The currency gained 0.8 percent to 87.56 U.S. cents after sliding to 86.43 cents on Oct. 3, the lowest since July 2010.
Yuan Strength
The yuan rose after the People’s Bank of China set the currency’s daily fixing 0.04 percent stronger at 6.1446 per dollar, the highest since Sept. 10. Governor Zhou Xiaochuan reiterated the need for “prudent” monetary policy in an Oct. 11 report to the International Monetary Fund in Washington.
“The data should continue to support the relative strength in the renminbi, underpinned by a less resistant foreign-exchange policy and still attractive carry,” said Ju Wang, a currency strategist in Hong Kong at HSBC Holdings Plc, using the official name for the yuan.
The yuan climbed 0.08 percent to 6.1259 per dollar, China Foreign Exchange Trade System prices show. The currency earlier reached 6.1252, matching the highest level since March 7.
“If foreign growth is weaker than anticipated, the consequences for the U.S. economy could lead the Fed to remove accommodation more slowly than otherwise,” Fed Vice Chairman Stanley Fischer said Oct. 11 in a speech at the International Monetary Fund’s annual meetings in Washington.
Fischer’s Concerns
The remarks, echoed by other Fed officials, highlighted mounting concern that the improving U.S. economy may struggle to withstand foreign weakness and a strengthening dollar.
Speaking on Oct. 10, U.S. Treasury Secretary Jacob J. Lew warned global policy makers against devaluing exchange rates for competitive advantage. The comment served as a reminder of the 2013 pact between finance chiefs not to use currencies as a policy tool for fear of triggering a spiral of devaluations and trade wars.
Traders see a 25 percent chance the Fed will boost its benchmark rate by July 2015, down from 56 percent odds on Sept. 30, according to fed funds futures data compiled by Bloomberg. The target rate has been in a range of zero to 0.25 percent since December 2008 to support the economy.
“We’ve seen the dollar soften,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. “You’ve got global growth stuttering a bit compared to market expectation. You’ve got to ask yourself if that’s an environment where the Fed is going to be in a rush to hike interest rates.”
The dollar has rallied 1.8 percent in the past month, the best performer of 10 developed-nation currencies tracked by Bloomberg correlation-Weighted Indexes after the yen’s 1.84 percent rise. The euro declined 0.6 percent, while Australia’s dollar tumbled 1.7 percent.
