A gauge of the dollar slid for a third day as traders sought further signs that the U.S. economy is strong enough for the Federal Reserve to raise interest rates for the first time since 2006.
The greenback headed for its biggest slide against the yen this year after Bank of Japan Governor Haruhiko Kuroda said the Japanese currency’s real effective rate is unlikely to fall further. The dollar also dropped against its Australian and New Zealand counterparts before U.S. retail sales figures Thursday.
“It is a classic case of markets entering a highly sensitive phase preceding a rate increase,” said Nobuo Ichikawa, chief manager of foreign exchange financial products trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “It ultimately comes down to data.”
The Bloomberg Dollar Spot Index fell 0.4 percent to 1,175.50 as of 7:57 a.m. in London from Tuesday, set for its longest drop since May 15. The dollar slid 1.2 percent to 122.88 yen, headed for it’s biggest decline since Dec. 16.
The greenback has lost ground since jobs data on June 5 beat forecasts, extending losses even after President Barack Obama on Monday denied expressing concern about the currency’s strength in private conversations at a Group of Seven summit. It reached a 13-year high of 125.86 yen on June 5.
The Japanese currency surged Wednesday after Kuroda said the real effective exchange rate, which adjusts for inflation and trade with other nations, is already very weak.
The rate is 1.8 standard deviations lower than its average over the past 10 years, according to data compiled by Bloomberg based on Bank for International Settlements figures. The currency has already dropped to levels it was at before the collapse of Lehman Brothers Holdings Inc. in 2008, Kuroda told lawmakers in the Japanese parliament on Wednesday.
“The impact was very strong as markets were getting wary about the dollar’s run-up past 125 yen, and the comments came from a big name,” said Daisaku Ueno, chief currency strategist at MUFJ Morgan Stanley in Tokyo. “The yen is pressured to weaken as long as the BOJ continues its easing, and trying to stop its further decline verbally is not the right way.”
Economy Minister Akira Amari said on Tuesday abrupt moves in currencies aren’t good for the economy and he will closely monitor developments in the market. Prime Minister Shinzo Abe said it’s desirable to see the exchange rate be stable.
“Japanese officials clearly don’t like to see their currency moving in one direction too fast,” said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong.
The Australian dollar and New Zealand’s currency both erased losses after Kuroda’s comment dragged the greenback down against the yen. The Aussie had fallen earlier after central bank Governor Glenn Stevens said policy makers retain the option to cut record-low interest rates.
Australia’s currency rallied 0.6 percent to 77.33 U.S. cents, while the kiwi rebounded 0.7 percent to 71.82 cents.