Dollar Strengthens Against Euro as U.S. Manufacturing Advances
Oct. 28 (Bloomberg) -- John Taylor, chairman and founder of FX Concepts Inc., discusses the outlook for currency markets. Taylor, speaking with Erik Schatzker on Bloomberg Television's "InsideTrack," says another round of quantitative easing is mostly priced into the market and that the U.S. dollar will weaken through the end of November before recovering. (Source: Bloomberg)
Nov. 1 (Bloomberg) -- David Bloom, global head of currency strategy at HSBC Holdings Plc, talks about the outlook for the dollar. He speaks with Francine Lacqua on Bloomberg Television's "On The Move." (Source: Bloomberg)
The dollar gained against the euro for the first time in three days after a report showed U.S. manufacturing expanded in October at the fastest pace in five months, boosting demand for higher-yielding assets.
The greenback also advanced versus the yen as the Institute for Supply Management’s factory index unexpectedly rose. The dollar was still down versus half of its 16 most-traded counterparts amid speculation the Federal Reserve will say this week it plans to increase bond purchases and before tomorrow’s U.S. elections. The Swiss franc dropped after a Chinese manufacturing index rose in October, damping haven demand.
“The ISM data was a bit stronger than expectations and took the wind out of the dollar bears going into all the events we have coming up this week,” said Greg Michalowski, chief currency analyst at FXDD, an online foreign-exchange broker, in Scottsdale, Arizona.
The dollar appreciated 0.4 percent to $1.3893 per euro at 5 p.m. in New York, from $1.3947 on Oct. 29. It earlier declined to $1.4011, the weakest level since Oct. 25. The yen slipped 0.1 percent to 80.51 per dollar, from 80.40. It earlier rose to 80.22, the strongest level since April 1995. The yen advanced 0.2 percent to 111.85 per euro, from 112.12.
The ISM factory index rose to 56.9 in October from 54.4 a month earlier, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth. Economists in a Bloomberg News survey forecast the gauge would decline to 54.
Euro Drops
The euro fell against all of its major counterparts except Norway’s krone and the franc as the Fed prepared to meet and stocks erased an advance. The Standard & Poor’s 500 index was little changed at closing, after gaining as much as 1.1 percent earlier on the Chinese data and U.S. manufacturing report.
“The market is pulling back on risk ahead of the midterms and the Fed,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “It’s significant weight, one that I don’t think the markets have seen for quite some time.”
Bloomberg Correlation-Weighted Currency Indexes tracking 10 developed-world currencies show the euro has gained more than 3 percent against its counterparts since September. It fell 0.2 percent against them today.
Fed policy makers will probably announce after their Nov. 2-3 meeting a plan to buy at least $500 billion of long-term securities in a monetary-stimulus strategy called quantitative easing, according to economists surveyed by Bloomberg News.
$500 Billion
Fifty-three of 56 economists surveyed last week said the Fed will restart a program of securities purchases. Twenty-nine estimated it will pledge to buy $500 billion or more, while another seven forecast $50 billion to $100 billion in monthly purchases without a specified total. Earlier estimates of total purchases reached $2 trillion.
The central bank bought $1.7 trillion in debt from December 2008 to March to boost the economy.
The dollar may have weakened too far and could get a boost from lower-than-forecast purchases, HSBC Holdings Plc said.
“While we have been pushing a broadly dollar-negative view for some time, we find ourselves thinking the fall is a little overcooked,” HSBC analysts led by London-based David Bloom wrote in a note to investors today. “The questions for markets are, how much QE and how often? If it is smaller than the market may be hoping for, this would trigger a risk-off move and push the dollar higher.”
The U.S. congressional elections tomorrow may see the Republican Party gain control of the House of Representatives, reducing the Democratic Party’s power to enact fiscal policy.
Stimulus Responsibility
“Expectations will be that the more gridlock there is, the more responsibility for stimulus will fall on the Fed,” said Ron Leven, executive director and currency strategist at Morgan Stanley in New York.
This will continue to weigh on the dollar, he said.
The Fed will release its policy decision on Nov. 3 at about 2:15 p.m. in Washington. About 18 hours later, the Bank of England will announce its move. The European Central Bank will go public with its decision 45 minutes after that in Frankfurt, and the Bank of Japan concludes its talks on Nov. 5.
The pound approached the highest level in nine months against the dollar on speculation the Bank of England will refrain from joining the Fed in renewed asset purchases. Sterling rose as much as 0.3 percent to $1.6090, nearing Oct. 15’s peak of $1.6107, the highest since Jan. 29. The pound gained 0.3 percent to 86.65 pence per euro.
Aussie Recommendation
Investors should buy the Australian currency against the greenback on speculation the Fed will step up Treasury purchases after its meeting, Paul Meggyesi, a managing director of currency strategy at JPMorgan Chase & Co., wrote in a research report dated Oct. 29 and sent to journalists today.
Australia’s dollar rose for a third day, gaining 0.4 percent to 98.71 U.S. cents, on speculation the South Pacific nation will maintain its interest-rate premium with the U.S. The Reserve Bank of Australia meets tomorrow.
China’s purchasing managers’ index increased to 54.7 last month from 53.8 in September.
The franc tumbled as much as 1 percent to 1.3834 per euro, the weakest level since Aug. 10, and slid as much as 1.5 percent to 99.72 centimes versus the dollar, the weakest since Sept. 22.
To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
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