Dollar, Yen Weaken Before Merkel

The dollar and yen weakened against higher-yielding currencies before Germany’s chancellor meets with the International Monetary Fund’s managing director amid signs European leaders are taking steps to end the debt crisis.

The U.S. currency slid the most versus Brazil’s real and New Zealand’s dollar as stocks and commodities advanced amid bets the Peoples Bank of China may move to spur growth. Implied volatility (JPMVXYG7) for currencies of advanced economies fell to a six- month low. The euro gained versus the dollar on speculation investors pared wagers the 17-nation currency will weaken.

“It’s about the performance of commodity currencies today,” said Mary Nicola, a New York-based currency strategist at BNP Parisbas SA. “There are further expectations of easing from the PBOC. If you have more easing, it’s more supportive of credit generation and investment, so you’re going to help support commodities and raw materials.”

The dollar fell 0.1 percent to $1.2778 per euro at 11:45 a.m. in New York after weakening 0.4 percent yesterday. The yen declined 0.1 percent to 98.20 per euro. The dollar was little changed at 76.85 yen.

The implied volatility of three-month options for Group of Seven currencies fell to 10.6 percent, according to a JPMorgan Chase & Co. index, the lowest level on a closing basis since July 8. Reduced volatility indicates less probability of currency fluctuations that may erode profit on investments in higher-yielding assets.