14.06.201305:45:32UTC+00Dollar Index declines on less speculation of fed stimulus retreat

The Dollar Index back down to its worst point in almost four months on assumption the Federal Reserve won’t raise lending rates even if it elects to taper bond-purchasing financial stimulus.

The yen powered up versus the greenback, extending its biggest three-day gain since 2010, as the Nikkei 225 Stock Average entered a bear market, triggering demand for less-risky assets. The greenback decline even as U.S. retail sales jumped more than forecast in May. The euro advanced against the dollar for a fourth day as European Central Bank Executive Board member Yves Mersch expressed uncertainty about employing negative interest rates.

Dollar Measure

The Dollar Index, which Intercontinentalexchange Inc. uses to monitor the greenback versus the currencies of six U.S. trade partners, pullback 0.3 percent to 80.674 after touching the lowest point since Feb. 19.

The measure extended its a loss after the Wall Street Journal reported that the Fed may push back on expectations of a rate increase. It briefly rebounded earlier today after retail sales in the U.S. rose 0.6 percent, exceeding the median forecast of 0.4 percent from 83 economists surveyed by Bloomberg. The increase was the biggest in three months and followed a 0.1 percent gain in April.

Fed policy makers next meet on June 18-19. Chairman Ben S. Bernanke said on May 22 the central bank could reduce its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage-backed securities if the employment outlook shows a sustainable improvement.

The Nikkei fell 6.4 percent to 12,445.38. after touching the gauge’s lowest level since April 4.

‘Seeking Safety’

“The cause of this yen move has been Nikkei weakness,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “The Nikkei is a measure of the willingness of Japanese investors to take foreign-exchange risk, and its decline has investors seeking safety.”

Rand Strength

South Africa’s rand rose, rebounding after falling on June 11 to its lowest level in more than four years versus the dollar. The currency climbed 2.6 percent to 9.8479 per dollar.

Fund Flows

“What we’re seeing is a very massive unwinding of Japanese short positions, which were put in place after the announcement of the BOJ’s massive monetary easing,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a telephone interview. “The BOJ is hesitant to intervene even more at this point because they probably want to save what little ammunition they have left until a more critical time.”

One-month implied volatility of the dollar-yen currency pair reached 18.91 percent, the most since March 2011. Currency volumes were “exceptionally high” today, notably in the yen, Citigroup Inc. wrote in its CitiFX Wire note to clients.

The World Bank cut its growth forecast for the global economy this year to 2.2 percent, from a January prediction of 2.4 percent, and slower than last year’s 2.3 percent, it said in a report released yesterday in Washington.

“It’s still a sluggish environment,” Robert Sinche, global strategist at Pierpont Securities Holdings LLC, said in an interview on Bloomberg Television’s “Surveillance” with Tom Keene. “China is where there’s uncertainty now because the numbers keep coming in a little bit softer because there’s no stimulus there. That’s a concern for global growth.”