Stacks of U.S. one-dollar bills are arranged for a photograph in New York. (Photographer: Scott Eells/Bloomberg)

Dollar Touches 1-Month Low as It Heads for Worst Year Since 2003

(Bloomberg) -- The dollar reached its lowest level in a month versus the euro on Thursday as an earlier slide in Treasury yields and year-end rebalancing flows weighed on the currency that’s heading for its worst year in more than a decade.

Dollar Touches 1-Month Low as It Heads for Worst Year Since 2003

The greenback declined against all its Group-of-10 peers after benchmark U.S. Treasury yields fell by the most since September on Wednesday. The currency also faced a setback as the recent strong demand for dollar funding over year-end eased. The dollar was on track for an almost 12 percent decline this year versus the euro, its worst performance since 2003. Volatility in foreign-exchange markets was exacerbated amid thin trading volumes.

“Month-end flows in illiquid market conditions are the primary driver” of the dollar’s weakness, says Jason Wong, a currency strategist at Bank of New Zealand. “Risks are skewed for dollar losses against the pound and euro in 2018.”

The euro climbed 0.4 percent to $1.1932 as of 9:39 a.m. in London, after touching $1.1947, its highest since Nov. 27. The Bloomberg Dollar Spot Index fell 0.3 percent, extending its decline this year to 8.2 percent, its biggest slide since data starting at the end of 2004. Ten-year Treasury yields rose two basis points to 2.43 percent on Thursday, after tumbling seven basis points the previous day, the steepest drop since Sept. 7.

“Lower yields are generally not good for the dollar so that’s an important reason,” said Georgette Boele, a currency strategist at ABN Amro Bank NV, adding that “this time of the year currency markets are mainly technical driven and order driven.”

  • GBP/USD rises 0.4% to 1.3447, after reaching 1.3457, highest since Dec. 14
  • USD/JPY falls 0.5% to 112.81
    • BOJ said it will maintain the current pace of its bond-purchase plan in January
  • NZD/USD advances 0.4% to 0.7087 after reaching 0.7099, highest since Oct. 19
    • Kiwi has climbed more than 4% since reaching 17-month low of 0.6781 on Nov. 17 as traders speculate incoming RBNZ Governor Adrian Orr will be able to steer the mandate change at the central bank
    • “Commodity currencies have outperformed during December and look to start January on a good footing, but upside for them against the dollar is likely limited from here,” Bank of New Zealand’s Wong said.
  • AUD/USD rises 0.4% to 0.7798; touched 0.7810, highest since Oct. 24
    • “The Aussie is driven up by strong commodity prices especially the strength in base metal prices, but recent moves have been exaggerated by thin market condition,” says Takuya Kanda, general manager and senior researcher at Gaitame.Com Research Institute in Tokyo

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