Dollar Appreciates as Economic Data Damp Stimulus Wagers

The dollar gained against most major peers as the Federal Reserve said the U.S. economy continued to expand “gradually,” damping speculation the central bank will engage in a third round of quantitative easing.

The greenback appreciated against the euro and yen as separate U.S. reports showed gross domestic product grew more than previously estimated in the second quarter and pending home sales in July exceeded forecasts. The Fed in its Beige Book business survey said improvement in housing and retail sales in July and early August helped outweigh weakness in manufacturing. Sweden’s krona slumped to a four-week low against the euro.

“The Fed Beige Book was not quite as grim as some of the other commentary we’ve heard from Fed officials,” Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage, said in a telephone interview. “While the economy is certainly not recovering at a pace that anyone should be satisfied with, it does suggest that maybe we’re not yet at a point for QE3.”

The dollar gained 0.3 percent to $1.2530 per euro at 5 p.m. New York time. The greenback strengthened 0.3 percent to 78.71 yen. Europe’s shared currency was little changed at 98.62 yen.

The euro may increase to $1.27 and potentially $1.30, Hans- Guenter Redeker, head of currency strategy at Morgan Stanley, said in an interview on Bloomberg Television’s “The Pulse” with Caroline Hyde.

The euro has appreciated 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies, amid speculation policy makers will succeed in stemming market turmoil. The dollar has declined 1.2 percent and the yen has fallen 1.9 percent.

Swedish Krona

Sweden’s krona fell against all but one of its most-traded peers after the National Institute of Economic Research said Sweden’s central bank will cut its main lending rate to 1 percent from 1.5 percent this year to support expansion.

The currency declined 0.5 percent to 8.3487 per euro after dropping to 8.3715, the weakest level since Aug. 1. The krona slid 0.8 percent to 6.6632 per dollar, after tumbling by as much as 1 percent, the biggest intraday decline since July 6.

The Mexican peso decreased against most of its major peers as a shutdown of refineries caused by Hurricane Isaac curbed crude-oil demand. Mexican oil exports accounted for $27.1 billion in revenue in first six months of year, according to preliminary data from a national statistics agency.

The peso fell 0.9 percent to 13.3088 per dollar after declining as much as 1 percent to 13.3217, its lowest point since Aug. 3.

Economic Expansion

A close of 13.2506 pesos per dollar or weaker would expose the Mexican currency to 13.4710 followed by 13.7767 and ultimately 14.6008, MacNeil Curry, chief rates and currencies technical strategist in New York at Bank of American Merrill Lynch, wrote to clients today, citing technical factors.

Most regional reserve banks reported employment was “holding steady or growing only slightly,” the Fed said in its Beige Book business survey based on reports from its 12 districts.

The index of pending home resales climbed 2.4 percent, exceeding the 1 percent gain median forecast of 39 economists surveyed by Bloomberg News, figures from the National Association of Realtors showed. The gauge rose to 101.7, the highest since April 2010.

‘Stronger Dollar’

“The slightly better U.S. housing number provided a push,” Mike Moran, a senior currency strategist at Standard Chartered in New York, said in a telephone interview. “It solidified the stronger dollar.”

GDP climbed at a 1.7 percent annual rate from April through June, up from an initial estimate of 1.5 percent, revised Commerce Department figures showed today in Washington. The figure followed a 2 percent first-quarter pace and matched the median estimate in a Bloomberg survey.

“Recent housing-market reports, including data on sales of existing and new homes, have been consistent with stabilization and gradual recovery,” Kathy Lien, managing director of foreign exchange at BK Asset Management, an investment advisory firm in New York, wrote today in a note to clients. “The rally in equities and low level of interest rates have given investors confidence to dip their toes back into the market.”

Bernanke will give a speech in two days at a meeting of central bankers in Jackson Hole, Wyoming, that may shed light on the outlook for U.S. monetary policy as signs of an improving economic outlook dull the case for more stimulus.

Spain, Italy

“More and more people are getting of the mindset that Bernanke isn’t going to say anything new,” Brian Kim, a currency strategist in Stamford, Connecticut, at Royal Bank of Scotland Group Plc, said in a telephone interview. “You may see euro-dollar come a little lower again on dollar strength because some people might have been pricing in dollar weakness while thinking about QE.”

Europe’s shared currency has climbed 2.5 percent against the dollar since Aug. 1, the day before ECB President Mario Draghi said the central bank may buy Spanish and Italian bonds to cap borrowing costs. He will give a press conference on Sept. 6 in Frankfurt after the next meeting of policy makers.

Italy doesn’t need to tap the rescue fund at the moment because measures by the government are starting to offset market concerns, Italian Prime Minister Mario Monti said in an interview with Il Sole 24 Ore published today.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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