BLBG:Dollar Declines Against Yen Amid Fed Policy Bets; Kiwi Weakens
The dollar declined for a second day against the yen as investors weighed when the Federal Reserve will slow the pace of bond purchases that have contributed to weakening the greenback.
The Bloomberg U.S. Dollar Index also remained lower after a U.S. government report last week showed employers added fewer workers in July than economists forecast. The yen strengthened against 15 of its 16 major counterparts as Japanese stocks declined, spurring demand for safety. The pound gained as U.K. services growth accelerated. New Zealand’s dollar dropped against all of its major peers after China halted imports of milk powder from Auckland-based Fonterra Cooperative Group Ltd.
“The disappointment from payroll data last week makes people question when the Federal Reserve will be able to start tapering its bond purchases,” said Jane Foley, a senior foreign-exchange strategist at Rabobank International in London. “The market is generally long dollars and that means the currency is going to open up to more disappointment. The dollar will be hard pressed to be much higher unless the upcoming data is particularly strong.”
A long position is a bet an asset will rise.
The dollar dropped 0.6 percent to 98.38 yen at 10:43 a.m. in London after losing 0.6 percent on Aug. 2. It was little changed at $1.3282 per euro after falling 0.5 percent at the end of last week. Japan’s currency appreciated 0.5 percent to 130.69 per euro.
Bloomberg’s dollar gauge, which tracks the greenback against its 10 major counterparts, fell 0.2 percent to 1,026.85 after sliding 0.6 percent on Aug. 2.
Pound Climbs
The pound rose for a second day against the dollar as a report showed U.K. services growth expanded in July more than economists predicted to the fastest pace in more than six years, adding to signs the economic recovery is gathering momentum.
Sterling advanced 0.5 percent to $1.5364 after jumping 1.2 percent on Aug. 2, the biggest gain since June 6. The U.K. currency appreciated 0.4 percent to 86.46 pence per euro.
The Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said on Aug. 3 the non-manufacturing Purchasing Managers’ Index rose to 54.1 last month from 53.9 in June. A separate report from HSBC Holdings Plc and Markit Economics today showed that their services PMI was unchanged in July at 51.3. A reading above 50 signals expansion.
‘Leading Indicator’
In China “we may see some stabilization, and therefore the outlook for Asia, from being very bearish, is turning more neutral,” Thomas Harr, the head of Asia local-markets strategy at Standard Chartered Plc in Singapore, said in a Bloomberg Television interview. “It’s definitely very, very important to follow these PMI data from China. PMI manufacturing is, in our view, the most important leading indicator for Asian currencies of all the macro indicators we have.”
U.S. Labor Department figures showed on Aug. 2 that payrolls rose by 162,000 in July, the smallest gain in four months and compared with the 185,000 increase projected in a Bloomberg News survey of economists. The unemployment rate dropped to 7.4 percent from 7.6 percent.
Fed Chairman Ben S. Bernanke said on June 19 that the central bank may start dialing back its bond-buying program this year and end it entirely in mid-2014 if the economy achieves sustainable growth. It has been buying $40 billion of mortgage-backed bonds and $45 billion of Treasuries each month to inject cash into the economy.
Currency Indexes
The dollar has strengthened 5.4 percent in the past six months, the best performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2.9 percent, while the yen weakened 0.2 percent, the indexes show.
The Institute for Supply Management will say today that its U.S. non-manufacturing index rose to 53.1 in July from 52.2 in June, the lowest level since February 2010, according to the median economist estimate in a Bloomberg News survey.
Half of the 54 economists in a July 18-22 Bloomberg survey expected the Fed to decide to reduce the bond purchases at its Sept. 17-18 gathering.
“I generally like the U.S. dollar,” Greg Gibbs, a Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc, said in a separate interview with Bloomberg Television. The economic data still point “toward the Fed beginning their tapering in September, so I think that’s going to keep the dollar pretty well supported.”
The kiwi slid 0.7 percent to 77.82 U.S. cents, approaching the one-year low of 76.84 touched June 24.
Fonterra, the world’s largest dairy exporter, said Aug. 3 that three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause botulism. Dairy products make up about a quarter of the South Pacific nation’s total overseas sales.
“Dairy exports are a big deal, and exports to China are a big deal for dairy exports,” said Imre Speizer, a markets strategist at Westpac Banking Corp. (WBC) in Auckland. “If China puts a ban on officially and it lasts for some significant period of time, you’ll probably see further negative reaction in the kiwi.”
To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net;
To contact the editor responsible for this story: Nicholas Reynolds at nreynolds2@bloomberg.net
