Dollar Index Drops for Ninth Week, Longest Since 2004, on Economic Outlook

The Dollar Index dropped for a ninth week, the longest losing streak in more than five years, as economic data signaled the U.S. recovery is stalling and added to concern the world’s biggest economy may need more stimulus.

The greenback fell to an eight-month low versus the yen and the weakest level since May against the euro as reports showed the U.S. lost more jobs last month than forecast and American factory orders and existing-home sales slid in June. Federal Reserve officials meet next week on interest rates and policy.

“The data continues to come in, for the most part disappointing,” said Brian Dolan, chief strategist at FOREX.com, a unit of online currency trading firm Gain Capital Inc. in Bedminster, New Jersey. “We’re still grappling with a slowdown in the U.S., a potential policy response from the Fed; all of that argues for a weaker dollar.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major trading partners, fell 1.4 percent over the past five days to 80.407. It registered its last weekly gain on June 4. It was the longest period of losses since the 11 weeks ended Dec. 3, 2004.

The yen gained 1.1 percent to 85.51 per dollar, the second weekly advance, from 86.47 yen on July 30. It reached 85.02 yen, the lowest since Nov. 27, when it touched levels last seen in 1995. The greenback tumbled 1.7 percent to $1.3280 per euro, its second weekly loss, and touched $1.3334, the weakest since May 3. The shared currency rose 0.6 percent to 113.55 yen.

‘Soft Patch’

“Growth has slowed -- there are concerns about the current soft patch of data,” said Robert Lynch, head of currency strategy at HSBC Holdings Plc in New York. “Now the focus is on policy makers at the FOMC meeting on Tuesday, if the Fed chooses to take additional steps.”

The Fed’s Open Market Committee, which meets Aug. 10, has kept the benchmark interest rate at a range of zero to 0.25 percent since December 2008. It also used purchases of Treasury, housing-agency and mortgage-backed securities to spur growth in an effort that ended in March. The asset buys increased the size of the central bank’s balance sheet to a record $2.35 trillion in May from $900 billion two years earlier.

St. Louis Fed President James Bullard wrote in a paper published last week that the central bank should resume purchases of Treasuries if the economy slows and prices fall.

The Fed is “going to be under a lot of pressure to take additional measures,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago.

Payrolls Shrink

Nonfarm payrolls shed 131,000 jobs last month, Labor Department data showed yesterday, compared with a drop of 65,000 forecast in a Bloomberg News survey of 84 economists. The economy lost a revised 221,000 jobs in June. Private payrolls that exclude government agencies rose by 71,000 in July, less than forecast, after a gain of 31,000 in June that was smaller than first reported. The jobless rate stayed at 9.5 percent.

Household purchases, which account for about 70 percent of the economy, were unchanged from May, according to figures from the Commerce Department this week. Contracts to buy existing houses unexpectedly dropped for a second month, and factory bookings fell more than twice as much as economists estimated, other reports showed.

“People are fairly set it’s going to be a very slow recovery,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York.

Lending Rate Gap

The difference between short-term lending rates in the U.S. and Europe widened, which also may damp demand for U.S. assets and the dollar. The rate that London-based banks say they charge each other for three-month loans in dollars fell for the 18th straight day, while the rate for euro loans rose.

The London interbank offered rate for dollars, or Libor, declined to 0.411 percent yesterday, the lowest level since May 6, according to the British Bankers’ Association. Libor for euros for three months rose for a 10th week and reached 0.834 percent, the highest in a year, data showed.

Mexico’s peso and Canada’s dollar were among the worst performers among major currencies this week. Each country has the U.S. as its biggest trading partner. Canada’s economy also unexpectedly shed jobs last month, with the government statistics agency reporting a net loss of 9,300 positions.

The peso dropped 0.4 percent to 12.6925 to the dollar, while the Canadian currency gained 0.2 percent to C$1.0274 per greenback.

The yen has risen the most this year among 10 developed- world currencies, 11 percent, Bloomberg Correlation-Weighted Currency Indices show. The dollar has gained 0.7 percent, while the euro, the worst performer, has dropped 7.4 percent.

Europe’s single currency still has rallied 11 percent since reaching a four-year low versus the dollar on June 7 as investors gained confidence that government austerity measures will help the region weather its sovereign-debt crisis.

The yen has appreciated versus all of its most-traded counterparts this year. Japanese Finance Minister Yoshihiko Noda told parliament on Aug. 3 currency rates should be determined by financial markets. He declined to comment on whether Japan will consider intervening to stem the yen’s appreciation.

To contact the reporters on this story: Mary Childs in New York at mchilds5@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net

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