Dollar Drops to Two-Month Low Versus Euro on Signs of Slower Manufacturing

The dollar dropped to a two-month low against the euro and fell versus the yen as reports showed manufacturing in the New York and Philadelphia regions expanded at the slowest pace this year and U.S. producer prices fell.

The euro advanced above $1.28 for the first time since May as demand at Spain’s government bond sale eased concern that nations in the currency region won’t be able to fund their deficits. Australia’s dollar slid against the yen as China reported slower economic growth.

“It’s not terribly surprising to see the U.S. dollar sold off,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “The economics have been softer. There’s some sovereign demand for the euro.”

The euro gained 1 percent to $1.2874 at 10:25 a.m. in New York, from $1.2743 yesterday, after touching $1.2893, the highest level since May 10. The euro dropped 0.2 percent to 112.45 yen, from 112.66. The dollar declined 1.2 percent to 87.35 yen, from 88.41.

The Federal Reserve Bank of New York’s general economic index and the Philadelphia Fed’s gauge fell in July to 5.1, reflecting the slowest pace of manufacturing expansion this year. Readings greater than zero signal growth.

U.S. producer prices dropped 0.5 percent in June after a 0.3 percent decrease in the previous month, the Labor Department reported. The median forecast of 73 economists in a Bloomberg News survey was for a 0.1 percent drop.

Spain’s Debt Sale

The euro rose earlier against the dollar after Spain’s debt sale drew stronger demand. The nation sold 3 billion euros ($3.8 billion) of 15-year bonds, attracting bids worth 2.57 times the securities offered, compared with 1.79 the last time they were sold in April. Spain, which is cutting spending, has the third- largest deficit in the euro region.

“We are beginning to see good news from Europe and bad news from the U.S.,” said Kathy Lien, director of currency research, at the online trader GFT Forex in New York. “The Spanish bond auction received a very strong amount of demand. It’s supporting the euro-dollar rally.”

Minutes of the Fed’s June 23 meeting released yesterday showed policy makers trimmed their forecasts for growth and said risks to the recovery had increased.

If the U.S. economic outlook worsened, policy makers would need to consider whether additional stimulus was appropriate, according to the minutes.

JPMorgan Chase & Co., the second-largest U.S. bank by assets, posted a 76 percent rise in quarterly profit to $4.8 billion, or $1.09 a share, beating an average estimate in a Bloomberg survey for adjusted earnings of 71 cents.

Goldman Sachs View

Goldman Sachs Group Inc. lowered forecasts for the dollar against the euro and yen on slowing U.S. growth and “reasonably solid” European economic data.

The euro will rise to $1.35 in six months, compared with a previous call for $1.15, Goldman Sachs said in a report dated yesterday. The dollar will trade at 83 yen in six months, compared with an earlier target of 94 yen, Goldman Sachs said.

Australia’s dollar fell on speculation slower growth in China will reduce demand for commodities. The Aussie declined 2.4 percent to 76.40 yen, from 78.24 yen, and decreased 1.2 percent to 87.47 U.S. cents, from 88.51 cents.

China’s economic expansion eased to 10.3 percent in the second quarter and industrial production cooled in June more than forecast, signaling a deeper second-half slowdown.

“Because of its heavy reliance on Chinese economy, any bad news that comes out of that country hurts sentiment toward Australia and the Aussie,” said Toshiya Yamauchi, a senior foreign-exchange analyst in Tokyo at Ueda Harlow Ltd.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

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