The US dollar snapped seven weeks of gains as tumbling oil prices dragged down inflation expectations and the global economic outlook, fueling speculation the US Federal Reserve might rethink the timing of an interest-rate increase next year.
The Bloomberg Dollar Spot Index fell before the Fed meets on Tuesday and Wednesday, and discusses its vow to hold rates low for a “considerable time.” The yen gained for the first week in almost two months as Japan prepared to vote in national elections. Norway’s krone fell to an 11-year low and the ruble plunged to a record as crude sank below US$58 a barrel for the first time since 2009. The Swiss franc strengthened.
“The dramatic drop that we’ve seen in oil suggests that it could be a closer call on the Fed and whether or not it ditches its lower rate guidance,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “This general flight for safety has depressed [US] Treasury yields to the point where it’s pulled the dollar lower.”
Bloomberg’s gauge of the US dollar declined 0.6 percent this week in New York, the first weekly drop since Oct. 17 and the biggest since the five days ended Oct. 10. The measure, which closed on Dec. 5 at a five-year weekly high of 1,122.34, has gained this year amid speculation the Fed is moving toward raising interest rates as the world’s biggest economy improves.
The greenback weakened 2.2 percent to ￥118.75 in the biggest decline since August last year. The US dollar depreciated 1.4 percent to US$1.2462 per euro, while the 18-nation currency fell 0.8 percent to ￥147.99.
Yields on US Treasury two-year notes dropped 10 basis points, or 0.10 percentage point, to 0.54 percent, damping the attraction of dollar-denominated assets.
Russia’s ruble was the biggest loser among the greenback’s 31 major peers this week, declining 9.3 percent. It reached a record-low 58.526, even as the central bank increased interest rates 1 percentage point to 10.5 percent, with central bank Governor Elvira Nabiullina saying she stands ready to take unorthodox steps if the situation worsens.
The currency is down 44 percent this year amid the oil rout and US and European sanctions over Russia’s support for an armed insurgency in Ukraine.
In Norway, western Europe’s largest oil exporter, the krone slumped 2.6 percent this week to 7.3511 per US dollar and touched 7.3970, its weakest since September 2003. The currency sank 4 percent to 9.1528 per euro and reached 9.1920, the weakest since January 2009.
The Norges Bank lowered interest rates for the first time in more than two years on Thursday. Preventing a “severe downturn” is the major concern of policymakers, and there is a 50 percent chance the central bank will cut again next year, Governor Oeystein Olsen said.
The yen led gains versus the US dollar, rising versus all of its 31 major peers. The Japanese currency has tumbled 30 percent in the past two years as Japanese Prime Minister Shinzo Abe implemented fiscal spending and structural reform and the Bank of Japan applied unprecedented monetary stimulus to battle deflation.
“The recent dollar-yen rally has been too rapid,” Shusuke Yamada, a foreign-exchange strategist at Bank of America Merrill Lynch in Tokyo, said in an interview on Bloomberg TV’s On the Move with Rishaad Salamat. “I’d expect some correction or at least consolidation for the next three months, which would depend on the election outcome.”
Abe is looking to renew a mandate for economic and fiscal reform when voters head to the polls today. His ruling Liberal Democratic Party and its coalition partner could win more than the 317 lower-house seats they need for a two-thirds majority, the Nikkei Shimbun forecast, citing a survey.
The euro rallied versus most major peers, even as it fell against the Swiss franc. Switzerland’s currency gained as central bank officials vowed to the defend the 1.20 franc-per-euro cap, saying the risk of deflation has increased. The franc appreciated 0.1 percent to 1.20113 per euro and touched 1.20086, the strongest since September 2012.
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