Saturday, September 14, 2013

Dollar Declines for Week Before Fed Considers Stimulus Taper

The dollar had its biggest weekly decline in six weeks as weaker-than-forecast economic data prompted investors to pare bets of an aggressive reduction in monetary stimulus at the Federal Reserve’s policy meeting next week.


The U.S. currency weakened against the yen today after a report showed retail sales rose less than projected last month, following a report on August payroll growth last week that also trailed forecasts. The U.S. central bank may begin to taper the $85 billion-per-month bond purchases it uses to lower borrowing costs at its meeting Sept. 17-18.

The British pound touched its highest level in more than seven months as July construction output rose at its fastest pace in three months.

“I would say the general consensus is still very much that they’ll taper,” said Tom Fitzpatrick, chief technical analyst at Citigroup Inc., by phone from New York.

“But we’ve seen just enough to know that the tapering they will do will be in the low end of expectations.”

The Bloomberg U.S. Dollar Index, which tracks the performance of a basket of 10 leading global currencies against the dollar, fell 0.7 percent this week to 1,023.95 in New York, the biggest weekly decline since the week ending Aug. 9.

Market Prices

The U.S. currency fell 0.2 percent today to 99.38 yen, after rising as much as 0.4 percent. The dollar was little changed at $1.3294 per euro, after falling as much as 0.2 percent. The yen gained 0.2 percent to 132.10 per euro.

The greenback has appreciated 3.9 percent this year, the best performer after the euro of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 4.8 percent and the yen slumped 10.6 percent.

“The weaker-than-expected report may have increased the possibility that the Fed either reduces the total amount or potentially delays the time it expects to begin reducing asset purchases,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said by phone.

“They’re tempering their views on tapering, you might say.” The U.K. currency advanced versus all of its 16 major peers before the Bank of England releases the minutes of its September meeting next week amid speculation policy makers may have to raise interest rates sooner than they have projected.

Data earlier this week showed the unemployment rate unexpectedly fell. The pound gained 0.5 percent to $1.5876, after rising to the highest level since Jan. 23.

Krona Weakness

The krona slid for the first time in six days against the euro as Statistics Sweden said gross domestic product shrank a quarterly 0.2 percent in the three months through June, revised from a 0.1 percent drop. The economy grew 0.1 percent from a year earlier, down from an estimate of 0.6 percent released in July.

The krona fell 0.6 percent to 8.7188 per euro, and slipped 0.6 percent to 6.5587 per dollar. Norway’s krone weakened after a regional network report showed growth slowed over the past three months. The krone dropped 0.8 percent to 7.8860 per euro, and declined 0.8 percent to 5.9314 per dollar.

Trading in over-the-counter foreign-exchange options totaled $16.5 billion, compared with $18 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg.

Volume in options on the dollar-yen exchange rate amounted to $3.2 billion, the largest share of trades at 19 percent. Options on the euro-dollar rate totaled $3.1 billion, or 18 percent.

Options Trade

Dollar-yen options trading was 8 percent less than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 108 percent more than average.

Retail sales rose 0.2 percent in August, the smallest gain in four months and followed a revised 0.4 percent July gain that was bigger than previously estimated, the Commerce Department reported today in Washington.

The median forecast of economists surveyed by Bloomberg called for a 0.5 percent advance. Sales excluding motor vehicles rose 0.1 percent. Consumer confidence in the U.S. declined in September to the lowest level since April, indicating household spending may take time to pick up.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment this month fell to 76.8 from August’s 82.1. Economists in a Bloomberg survey called for 82, according to the median projection.

“The weaker-than-expected report may have increased the possibility that the Fed either reduces the total amount or potentially delays the time it expects to begin reducing asset purchases,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said by phone.

“They’re tempering their views on tapering, you might say.”

Fed Policy

The Fed will slow its monthly asset purchases to $75 billion from $85 billion at its next meeting on Sept. 17-18, according to a Bloomberg survey of economists on Sept. 6.

Policy makers have pledged to keep their benchmark interest rate near zero at least as long as unemployment exceeds 6.5 percent and the outlook for inflation is no more than 2.5 percent.

President Barack Obama hasn’t made a decision on whom to nominate as Fed chairman, White House spokeswoman Amy Brundage said via Twitter. Nikkei reported Obama was set to name Lawrence Summers as Fed chairman, Lael Brainard likely to be named vice chairman.

bloomberg.com

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