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Dollar Drops Versus Major Trade Partners on Speculation Recovery Faltering

The dollar fell for a second week against its major trading partners as reports showing growth cooled in the U.S. fueled speculation the recovery of the world’s biggest economy may be stagnating.

New Zealand’s currency approached a record high after China Investment Corp. said it will buy the nation’s bonds. The Swiss franc rose to its strongest against the euro and the dollar as speculation increased Greece may need to restructure its debt, increasing demand for safety. U.S. employment growth slowed this month, a report next week is forecast to show.

“We’ve had some disappointing data, and it has weighed on the dollar,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “There are so many fleas on that dog -- no one necessarily wants to hold dollars for longer than they have to, and the Swiss franc is benefiting from that.”

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners including the euro, pound and yen, dropped 0.9 percent to 74.758, from 75.435 on May 20.

The greenback slid 1.1 percent to $1.4319 per euro, from $1.4161 last week. It also depreciated 1.1 percent to 80.80 yen, from 81.70. The yen was little changed at 115.67 per euro.

No Manipulation

The U.S. said yesterday China has made “insufficient” progress on letting the yuan rise and urged faster appreciation, without branding the world’s fastest-growing major economy a currency manipulator. The report, originally due in April, said “no major trading partner” of the U.S. met the legal standard of improperly manipulating its currency.

Futures traders cut bets the dollar will fall versus five of its major peers to the lowest since January in the week ended May 24, according to data from the Commodity Futures Trading Commission yesterday and data compiled by Bloomberg.

The difference in the number of wagers by hedge funds and other large speculators on a decrease in the dollar versus the euro, yen, Australian dollar, Canadian dollar and Swiss franc compared with those on an advance -- so-called net shorts -- was 115,541 on May 24, the smallest since Jan. 16.

The Swiss currency gained the most over the past month among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes, rising 4.6 percent. The dollar gained 1.2 percent and the euro fell 2.4 percent.

Rate Speculation

The franc reached 1.2102 per euro yesterday, the strongest level since the shared currency’s 1999 debut, amid speculation its strength won’t prevent the Swiss National Bank from raising interest rates as the economy expands. It touched 84.65 centimes per dollar, the strongest since at least 1971.

The KOF Swiss Economic Institute said the nation’s leading economic indicator was at 2.30, unchanged from April, the highest since August 2006. Economists forecast a drop to 2.22.

“The Swiss franc seems like it really can’t do anything wrong,” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co. “It firms on the back of risk aversion in the euro zone as a safe haven, but it also looks more favorable as the SNB may have to tighten policy after favorable data.”

The euro headed for its first monthly loss since November versus the greenback as European leaders struggled to keep the region’s sovereign-debt crisis from worsening.

Aid Payment

Luxembourg’s Jean-Claude Juncker, who heads euro-area finance chiefs, said May 26 the International Monetary Fund may not release its share of an aid payment to debt-strapped Greece next month. The IMF is due to contribute 3.3 billion euros ($4.7 billion) of a 12 billion-euro payment under the 110 billion-euro rescue approved last year. Further aid is under discussion.

The dollar fell against 13 of its 16 most-traded counterparts amid speculation a faltering U.S. recovery will delay interest-rate increases by the Federal Reserve.

U.S. gross domestic product grew more slowly in the first quarter than forecast, a 1.8 percent annual rate, Commerce Department data showed May 26. A Bloomberg News survey forecast a 2.2 percent rise. GDP accelerated 3.1 percent from October through December.

Consumer spending rose 0.4 percent in April, less than a 0.5 percent gain forecast in a Bloomberg survey, department data showed yesterday. Durable-goods orders fell in April and pending home resales plunged, other reports showed.

‘Weak Data’

“In the past few days we’ve gotten a lot of weak data out of the U.S., so that’s fueling speculation of longer-term accommodation by the Fed, and that’s obviously going to weigh on the U.S. dollar,” said Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York.

U.S. employers added the fewest jobs this month since January, 185,000, economists in a Bloomberg survey forecast before the Labor Department issues the data on June 3.

The euro rose on May 26 after European Central Bank President Jean-Claude Trichet said policy makers are “carefully” monitoring inflation, spurring bets the region’s economy is strong enough for higher borrowing costs.

The ECB raised its key rate to 1.25 percent in April from a record low 1 percent. The Fed has held its benchmark at zero to 0.25 percent since 2008, and is forecast to keep it unchanged until first-quarter 2012, according to a Bloomberg survey.

New Zealand’s dollar climbed to a three-year high as Finance Minister Bill English confirmed that China Investment, a sovereign wealth fund, was interested in purchasing the nation’s bonds at auction.

The currency, called the kiwi, reached 81.98 U.S. cents yesterday, the strongest since March 17, 2008. Its record since exchange-rate controls ended in 1985 is 82.14 cents, reached Feb. 27, 2008. The kiwi closed at 81.92 cents, up 2.9 percent.

To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Allison Bennett in New York at abennett23@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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