Dollar Falls Most in 2 Weeks Before GDP Seen Lower

New York (May 29)  The dollar fell the most in two weeks versus the yen before U.S. data that analysts said will show gross domestic product contracted in the first quarter.

The greenback slid against all but one of its 16 major peers as Treasury 10-year yields slid to a nine-month low relative to their Japanese counterparts. The dollar has weakened this month, while Treasury rates retreated, as Federal Reserve Chair Janet Yellen said the U.S. economy still needs help, damping bets interest rates will rise. Australia’s dollar climbed as data showed capital expenditure plans Commonwealth Bank of Australia said exceeded analysts’ estimates.

“The GDP data is expected to be negative number and it might be used as a motivation to keep the dollar on the weak side,” said Stuart Bennett, head of Group-of-10 foreign-exchange strategy at Banco Santander SA in London. Dollar-yen “hasn’t moved higher because of the Federal Reserve rhetoric and because the Bank of Japan hasn’t jumped in and done more easing.”

The dollar slid 0.3 percent to 101.57 yen at 6:59 a.m. in New York, down 0.7 percent this month. The yen gained 0.1 percent to 138.31 per euro after appreciating to 137.98, the strongest since Feb 6. Europe’s shared currency rose for the first time in three days, gaining 0.2 percent to $1.3617, after earlier dropping to $1.3586, the lowest level since Feb. 13. The Aussie climbed 0.7 percent to 92.98 U.S. cents, erasing its drop this month.

Shrinking Gap

The U.S. 10-year yield fell to 2.43 percent today, narrowing the premium it offered over comparable Japanese debt to 1.85 percentage points, the least since August.

U.S. gross domestic product contracted 0.5 percent in the first quarter, according to economists surveyed by Bloomberg. The report would follow a preliminary estimate of 0.1 percent annualized expansion. Growth was at a 2.6 percent pace in the fourth quarter.

The U.S. has further to go to achieve full health, Yellen said on May 7. Bank of Japan policy makers refrained from expanding monetary stimulus after a two-day meeting ended May 21. Board member Sayuri Shirai said it will take longer than two years to achieve the bank’s 2 percent inflation target, according to the text of a speech today in Naha, Okinawa.

Bond Relevance

“The U.S. bond yield story is still extremely relevant to dollar-yen,” said Ray Attrill, the global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “You don’t need to look too far beyond 10-year Treasury yields going below 2.5 percent to explain why dollar-yen is trading pretty heavily.”