VINACHEM

The dollar fell as revised datashowed the U.S. economy shrank for the first time in threeyears, increasing the case for the Federal Reserve to maintainrecord-low borrowing costs to stimulate growth.

The euro rose from almost a 3 1/2-month low before EuropeanCentral Bank Governing Council member Carlos Costa speakstomorrow amid speculation the central bank may expand stimulusnext week. Australia’s dollar led gains among major peers onsigns corporations’ capital expenditure will increase. China’syuan ended a five-day loss as some investors judged thedepreciation excessive. Declines in the dollar were limited as aseparate report showed fewer Americans filed applications forunemployment benefits last week.

“It’s almost June and we’re talking about Q1 data, butyes, it’s clearly a weak number,” Richard Franulovich, chiefcurrency strategist for the northern hemisphere at WestpacBanking Corp. in New York, said in a phone interview. “Likeeveryone else, I’m a dollar bull. On most long-term fundamentalmeasures, the U.S. growth prospects look more secure thanEurope.”

The Bloomberg Dollar Spot Index, which tracks the U.S.currency against 10 major counterparts, dropped 0.1 percent to1,012.01 as of 9:55 a.m. in New York.

The euro rose 0.1 percent to $1.3598 after fallingyesterday to the lowest level since Feb. 13. Europe’s dropped0.1 percent to 138.32 yen. The dollar declined 0.2 percent to101.71 yen.

Winners, Losers

Chile’s peso has gained 3 percent against the dollar thismonth, leading gains among 31 major currencies, followed by theRussian ruble’s 2.9 percent rally, according to data compiled byBloomberg. The Czech koruna and Swedish Krona each dropped 2percent, the biggest losers.

The dollar fell against the yen as U.S. 10-year yields fellone basis points to 2.43 percent, narrowing the premium itoffered over comparable Japanese debt to 1.85 percentage points,the least since August.

“The U.S. bond yield story is still extremely relevant todollar-yen,” said Ray Attrill, the global co-head of currencystrategy at National Australia Bank Ltd. in Sydney. “You don’tneed to look too far beyond 10-year Treasury yields going below2.5 percent to explain why dollar-yen is trading prettyheavily.”

The euro rose even after ECB Executive Board member YvesMersch said yesterday officials are “comfortable” withconventional and unconventional measures. Economists surveyed byBloomberg News predict official data tomorrow will show retail sales growth in Germany was 0.2 percent last month, holding nearthe 0.1 percent pace in March that was the slowest this year.

ECB Votes

ECB policy makers will meet on June 5 to decide whether tocut interest rates, two days after the release of May inflationdata. President Mario Draghi said this month the currency’s gainis hurting the central bank’s effort to boost consumer prices.

The yuan reversed earlier losses as some investors judgedexcessive the slide that brought the currency within 0.1 percentof its weakest level since 2012.

The yuan gained 0.25 percent, the most since May 6, toclose at 6.2399 per dollar, after dropping as much as 0.11percent, China Foreign Exchange Trade System prices show. Thecurrency lost 0.35 percent in the last five trading days and its14-day relative strength index was 67 at yesterday’s close, nearthe 70 level that signals to some investors a change ofdirection is likely.

Yuan Trades

“The renminbi has fallen a bit too much too fast in recentdays and entered into attractive territory for investors,” saidMeng Xiangjuan, an analyst at Shenyin Wanguo Securities Co. in Shanghai. “As we expect China’s economic growth to improve inthe second half, the yuan will reverse its depreciation trend.The central bank should also soon reduce its intervention inweakening the currency as its policy objective is to let marketsplay a bigger role.”

The Aussie advanced 0.4 percent to 92.77 U.S. cents evenafter data showed private capital expenditure fell 4.2 percentin the first quarter, compared with a 1.5 percent dropeconomists in a Bloomberg survey forecast.

“The Q1 CAPEX headline was weaker than expected butdetails were firmer, with forward spending plans stronger thanexpected,” Sue Trinh, a senior currency strategist at RoyalBank of Canada in Hong Kong, wrote in a research note. “Furthersigns of an improvement in service sector capex plans will bewelcomed by the central bank as the rotation of activitycontinues.”

Dollar Drop

The dollar fell from the highest in more than three monthsversus the euro as gross domestic product contracted 1 percentin the three months through March, government figures showedtoday, after a reading last month signaled 0.1 percent expansion

Jobless claims fell by 27,000 to 300,000 in the week endedMay 24. The median forecast of 50 economists surveyed byBloomberg called for 318,000. The four-week average declined tothe lowest level since August 2007, before the last recessionbegan.

Policy makers are watching progress toward their goal offull employment as they consider the timing of the first interest-rate increase since 2006. Minutes released May 21 ofthe Fed’s April meeting showed officials said continued stimulusto push unemployment lower doesn’t risk sparking an undesirablejump in the inflation rate.

The dollar is forecast to strengthen to $1.32 per euro and107 yen by the end of the year, according to the medianestimates in Bloomberg surveys of analysts.