BLBG:Dollar Index Reaches 3-Month High on Recovery Signs; Pound Drops
The Dollar Index (DXY) rose to a three- month high before the release of U.S. leading indicators and a regional manufacturing gauge that may add to evidence a recovery in the world’s largest economy is gathering pace.
Minutes of the Federal Reserve’s last meeting showed several policy makers advocated varying the pace of bond purchases. The euro slid for a second day before data that economists say will show manufacturing and services industries shrank in the currency bloc. Australia’s dollar dropped as Asian stocks declined, sapping demand for higher-yielding assets, and the British pound fell to a 2 1/2-year low.
“Dollar strength is gradually gaining momentum,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “There are clearer signs of a U.S. economic recovery.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus the currencies of six U.S. trading partners, gained 0.2 percent to 81.268 as of 6 a.m. in London after touching 81.279, the highest since Nov. 16.
The euro fell 0.3 percent to $1.3240 after losing 0.8 percent yesterday. It dropped 0.5 percent to 123.70 yen, following a 0.8 percent slide. The yen rose 0.2 percent to 93.42 per dollar.
Fed Policy
The Conference Board’s index of U.S. leading indicators probably rose 0.2 percent in January, according to the median estimate of economists surveyed by Bloomberg News. It would be a second month of gains in the gauge, which consists of data including work hours of manufacturers and initial jobless claims. A Fed report on manufacturing in the Philadelphia area is projected to show a rebound, according to another poll.
Some officials on the Federal Open Market Committee “emphasized that the committee should be prepared to vary the pace of asset purchases,” according to the minutes of the FOMC’s Jan. 29-30 meeting released yesterday in Washington.
The U.S. central bank buys about $85 billion of government and mortgage securities a month to support growth, in the third round of so-called quantitative easing that tends to debase the dollar.
“When the U.S. economy enters a gradual recovery path, it’s more likely that the Fed will reduce asset purchases in the second half of this year,” said Yuki Sakasai, a foreign- exchange strategist in New York at Barclays Plc.
Europe’s Economy
In Europe, manufacturing and services industries probably contracted in February, albeit by less than the previous month, according to a Bloomberg survey of economists. The manufacturing purchasing managers index is projected to be 48.5 compared with 47.9 in January, and the services PMI may come in at 49.0 from 48.6 a month earlier. A reading below 50 indicates contraction.
“The debt crisis in the euro region has eased, but its economic recovery is lagging,” said FX Prime’s Ueda. “When the U.S. economy picks up and the dollar’s strength starts to stand out, the euro’s weakness will be highlighted.”
The dollar has gained 0.2 percent in the past three months, while the euro has risen 3.8 percent, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies.
The yen was the worst performer during the period with a 13 percent slump amid speculation the next Bank of Japan (8301) governor will boost cash provisions to end deflation. Current Governor Masaaki Shirakawa and two deputies will step down on March 19.
BOJ Governor
Former BOJ Deputy Governor Kazumasa Iwata and Asian Development Bank President Haruhiko Kuroda are seen as the leading candidates to head Japan’s central bank, the Mainichi newspaper reported today, without citing anyone.
Iwata would be the most yen-bearish candidate because he advocates foreign-bond purchases, according to a note from Citigroup Inc. this week.
“I expect the yen to weaken in the next 12 months,” said Hiroshi Yoshida, a senior portfolio manager in Tokyo at MassMutual Life Insurance Co., which manages the equivalent of $18 billion. “The BOJ will continue to expand monetary easing regardless of whoever becomes the next governor.”
The MSCI Asia Pacific Index (MXAP) sank 1.5 percent today, snapping a three day rally. Australia’s dollar, known as the Aussie, retreated 0.2 percent to $1.0234.
The pound extended yesterday’s plunge after Bank of England minutes showed more officials on the Monetary Policy Committee voted to expand asset purchases at this month’s meeting.
“We’re getting some liquidation of positions against the U.S. dollar,” said Timothy Riddell, the Singapore-based head of global markets research at Australia & New Zealand Banking Group Ltd. (ANZ) “This is follow through from the MPC minutes yesterday, highlighting that the outgoing governor and a couple of other board members were actively pushing for an increase in the asset-purchasing program.”
Sterling slid for a fourth day, losing 0.5 percent to $1.5156 and reached $1.5132, the weakest since July 2010. Against the euro, it dropped 0.3 percent to 87.41 pence.
To contact the reporters on this story: Kevin Buckland in Tokyo at kbuckland1@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
