Dollar Set for Biggest Monthly Loss Since 2008 Versus Euro on U.S. Economy

The dollar headed for its biggest monthly loss since 2008 versus the euro as signs the U.S. economy is slowing damped demand for the nation’s assets.

The dollar was set for a quarterly drop versus all of its major counterparts before data forecast to show U.S. business activity and manufacturing slowed. Federal Reserve Chairman Ben S. Bernanke is scheduled to testify in Washington today amid speculation the central bank is preparing to buy more U.S. debt. The yen approached the strongest since the Bank of Japan intervened amid speculation exporters are bringing home overseas earnings before the end of the fiscal first half.

“America’s economic growth seems to be decelerating,” said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co. “This is a negative factor for the dollar.”

The dollar was at $1.3602 per euro at 1:28 p.m. in Tokyo from $1.3627 in New York yesterday, when it touched $1.3647, the weakest level since April 15. The greenback has fallen 6.7 percent this month versus the euro, the most since December 2008.

The yen traded at 83.51 per dollar from 83.70, after reaching 83.49, the strongest since Sept. 15. Japan’s currency rose to 113.62 per euro from 114.06, after dropping to as low as 114.23, its weakest since July 29.

U.S. Data

The Institute for Supply Management-Chicago Inc. will say today its business barometer fell to 55.5 this month from 56.7 in August, according to the median estimate of economists in a Bloomberg News survey. Figures greater than 50 signal expansion. The ISM manufacturing gauge dropped to 54.5 this month from 56.3 in August, according to another survey before the data tomorrow.

The Fed announced following its Sept. 21 meeting that it’s prepared to do more to help the economy, spurring speculation policy makers will add securities to the central bank’s holdings under a policy known as quantitative easing.

President Barack Obama and lawmakers from both political parties say the U.S. economic recovery is being hampered by a Chinese currency that is too weak. The House of Representatives voted 348-79 yesterday for a measure that would let domestic companies petition for duties on imports from China to compensate for the effect of a weak yuan. Democrats were joined by 99 of the 178 Republicans on the vote.

“It’s obvious the U.S. needs a weaker dollar to achieve its goals” such as boosting exports, said Toshiya Yamauchi, a senior foreign-exchange analyst at the online currency-trading company Ueda Harlow Ltd. in Tokyo. “The U.S. will continue to mount pressure on China because it can’t afford to wait any longer.”

Japanese Exporters

The yen rose for the first time in three days against the euro on speculation Japanese exporters took advantage of the currency’s decline to two-month low.

The Japanese currency’s level against the dollar is stronger than the 89.44 average estimated by large manufacturers for the six months to March 2011 in the Bank of Japan’s Tankan survey released yesterday. Exporters typically buy yen to convert overseas earnings into their own currency when they close account books in September and March.

“We are seeing exporters buy the yen at the end of this month and quarter,” said Masato Mori, a senior manager in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.

The yen has strengthened 17 percent against the euro and 11 percent versus the dollar this year, the best performance among 16 major counterparts against both currencies.

The Ministry of Finance in Tokyo will report today the amount of yen the central bank sold from Aug. 28 through Sept. 28 to curb appreciation in the currency. Demand for the yen has been tempered amid speculation Japan will sell its currency again after doing so on Sept. 15 for the first time since 2004.

Intervention Concerns

“People aren’t buying the yen aggressively because intervention may take place,” said Marito Ueda, senior marketing director at FX Prime Corp., a foreign-exchange margin company in Tokyo. “They can’t buy the dollar, either, as it’s in a firm downtrend. That’s why dollar-yen isn’t moving much.”

Taiwan’s dollar rose, heading for its best monthly advance since March 2009, as the faster yuan appreciation brightened the outlook for exports and an improving economy spurred overseas demand for the island’s assets.

The island’s dollar was set for its biggest two-day gain in three months as economists forecast the central bank will raise rates for the second time this year at a policy meeting today. The currency yesterday touched a two-year high, buoyed by foreigners’ net share purchases of $284 million, before paring its gain on suspected intervention by the central bank.

“The strong gain of the Taiwan dollar was driven by investors’ confidence that the central bank will raise rates today,” said Eric Hsing, a debt trader at First Securities Inc. in Taipei. “The inflows were so massive that the central bank couldn’t completely erase the gain yesterday.”

The Taiwan dollar rose 0.4 percent to NT$31.251 against its U.S. counterpart, according to Taipei Forex Inc. It reached NT$31.211 yesterday, the strongest level since August 2008, and has gained 2.5 percent this month. China has allowed the yuan to appreciate 1.7 percent since the end of August.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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