Foreign exchange volatility fell to the lowest level in almostseven years as central-bank polices of monetary stimulus andforward guidance restrain price swings.

The yen strengthened earlier as a government report showedinflation accelerated to the fastest in more than two decades inApril, reducing the prospect of additional stimulus by the Bank ofJapan. The krona declined versus most of its 16 major peers afterSweden's economy unexpectedly contracted and amid speculation theRiksbank will cut rates. The Canadian dollar fell as first-quartereconomic growth slowed.

“The forward-guidance policy by the central banks is keeping alid on rate expectations,” said Peter Kinsella, a seniorforeign-exchange strategist at Commerzbank AG in London. “We'reincreasingly going to see very flat volatility. It doesn't seem atpresent that there's going to be any catalyst to shake us from themalaise.”

JPMorgan Chase & Co.'s volatility index for the currenciesof the G-7 nations fell to 5.92 percent at 11:52 a.m. New Yorktime, reaching the lowest level since June 2007. A separateJPMorgan index measuring global foreign exchange volatility alsoreached a 2007 low.

The yen was little changed at 101.77 per dollar, and is up 0.4percent this month. The euro gained 0.3 percent to $1.3641, paringits monthly decline to 1.6 percent The shared currency added 0.3percent to 138.79 yen, trimming its loss since April 30 to 2.1percent.

The Russian ruble and Chile's peso have gained 2.4 percentagainst the dollar this month, leading winners among 31 majorcurrencies, according to data compiled by Bloomberg. The Swedishkrona dropped 2.6 percent, while the Czech koruna slipped 1.9percent, the biggest losers.

Canada's dollar dropped 0.2 percent to C$1.0858 against its U.S.counterpart after data showed gross domestic product grew at a 1.2percent annualized pace in January through March, compared with adownwardly revised 2.7 percent in the prior three months.Economists surveyed by Bloomberg predicted growth would slow to a1.8 percent pace.

The krona slid as much as 0.6 percent to 9.0894 per euro, theweakest level since May 6. It weakened for a fourth day against thedollar, depreciating 0.5 percent to 6.6768.

Gross domestic product shrank a quarterly 0.1 percent in thethree months through March, Statistics Sweden said today. GDP wasseen unchanged in a survey of analysts by Bloomberg. The economyexpanded an annual 1.9 percent, compared with the 2.5 percentgrowth predicted by the central bank.

“After today's data, the market is fully priced for one Riksbankcut this year and beginning to price in the risk of a second,” AdamCole, head of Group-of-10 currency strategy at Royal Bank of Canadain London, wrote in a client note.

The euro headed for a monthly decline versus 15 of its 16 majorcounterparts amid bets the European Central Bank will introduceadditional stimulus measures, which tend to weaken a currency, tocombat low inflation.

ECB policy makers, led by President Mario Draghi, will reducethe refinancing rate to 0.1 percent on June 5, according to themedian prediction of 53 economists surveyed by Bloomberg. Only twoof the analysts predicted that the rate will stay at 0.25 percent.Draghi said this month he's “comfortable” with acting in June.

“We could see a large selloff in the euro if the ECB actsaggressively,” said Yuki Sakasai, a currency strategist in New Yorkat Barclays. “A rate cut is already priced in and some people arealso expecting liquidity measures, so the focus would be on whetherthey will deliver more.”

Japanese consumer prices excluding fresh food increased 3.2percent from a year earlier, up from a 1.3 percent annual increasein March, the statistics bureau said in Tokyo today. Economistssurveyed by Bloomberg predicted an increase of 3.1 percent.Inflation quickened after the government of Prime Minister ShinzoAbe boosted the sales tax to 8 percent from 5 percent on April1.

The BOJ is due to announce its next policy decision on June 13after refraining from adding stimulus at its May 21 gathering.

“There are questions on what the BOJ is going to do; to them thecurrent policies seem to be working, and further easing might notbe as imminent as we thought,” Sireen Harajli, a strategist atMizuho Bank Ltd. in New York, said in a phone interview. “The biasis for a stronger yen versus the dollar.”

The dollar erased losses against the yen after a report showedbusiness activity in the Chicago area unexpectedly increased to aseven-month high in May. The Institute for SupplyManagement-Chicago Inc.'s business barometer rose to 65.5 thismonth from 63 in April. The median forecast of 46 economists in aBloomberg survey projected the index would fall to 61. Readingsgreater than 50 signal growth.

“We did see a pop in dollar-yen in the last few minutes,” saidMichael Woolfolk, a global-markets strategist at Bank of New YorkMellon in New York. “The data this morning was favorable, and interms of the rise in dollar-yen, we can make the argument that thepositive data supported it.”

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