Dollar Slides as U.S. Growth Falls Short of Forecast; Yen Climbs

The dollar fell versus the majority of its 16 most-traded peers after U.S. gross domestic product increased less than forecast in the first quarter, adding to concern the world’s biggest economy is struggling to grow.

The yen climbed against the greenback, gaining for the first week since March, as investors sought safety and the Bank of Japan failed to outline additional stimulus efforts. The GDP report damped bets the Federal Reserve will slow the pace of its bond buying under quantitative easing. Sweden’s krona rose for a third day against the euro.

“The softness in the U.S. numbers is leading to further discussion of how the Fed is going to manage its QE policy moving forward,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “It has led to expectations that there may be less talk of Fed tapering and more focus on how to continue to support the economy.”

The greenback dropped 1.2 percent to 98.05 yen at 5 p.m. New York time and touched 97.56, the lowest level since April 17. It lost 1.5 percent this week against the Japanese currency, the most since June. The yen rallied 1.1 percent to 127.73 per euro. The dollar declined 0.2 percent against the euro to $1.3030.

Trading in over-the-counter foreign-exchange options totaled $26 billion, compared with total turnover yesterday of $33 billion, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $10.7 billion, the largest share of trades at 41 percent. Options on the euro-dollar were the second most actively traded, at $2.9 billion, or 11 percent.

Below Average

Dollar-yen options trading was about 5 percent below the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Turnover in euro-dollar options fell short of average readings by 50 percent.

Futures traders decreased their bets that the yen will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an increase -- so-called net shorts -- was 79,730 on April 23, compared with net shorts of 93,411 a week earlier.

Traders reversed bets that the Swiss franc will decline against the greenback. Net-long bets that the franc will rise against the dollar totaled 1,179 on April 23, compared with net shorts of 3,253 a week earlier.

The Swiss currency gained 0.2 percent today to 94.29 centimes per dollar, paring a weekly loss to 1 percent.

U.S. GDP

The greenback extended losses versus the yen as Commerce Department data showed U.S. gross domestic product rose at a 2.5 percent annual rate, after a 0.4 percent fourth-quarter advance. The median estimate of economists surveyed by Bloomberg called for a 3 percent gain. Consumer spending, the biggest part of the economy, climbed by the most since the fourth quarter of 2010.

U.S. growth will slow to a 1.6 percent pace this quarter, a Bloomberg survey forecast. The lagged effect of a jump in the payroll tax at the start of 2013, and $85 billion in automatic budget cuts that began March 1, may take more of a toll.

“Investors have been concentrating a lot on headline numbers, which are confirming that the government sector is being a drag on the economy,” Charles St-Arnaud, a foreign- exchange strategist at Nomura Holdings Inc. in New York, said of the GDP data in a telephone interview. “But we haven’t reached that threshold where it’s extremely weak, which would cause a flight to safer assets.”

Bond Buying

The Fed, which opens a two-day meeting April 30, is buying $85 billion of bonds a month to put downward pressure on borrowing costs. Minutes of the central bank’s March meeting showed policy makers discussed slowing purchases this year.

The dollar increased 2.5 percent over the past three months against nine developed-nation peers tracked by the Bloomberg Correlation Weighted Indexes, the second-best performance. The yen fell 5.7 percent.

The krona advanced today versus all of its major counterparts except the yen after Sweden’s National Institute of Economic Research said its consumer confidence index climbed to 5.2 in April, from 2.8 the prior month.

The Swedish currency strengthened 0.3 percent to 8.5652 per euro and appreciated 0.5 percent to 6.5732 per dollar.

Rand Falls

South Africa’s rand fell versus most major peers after the country’s central bank warned of increased borrowing and accelerating inflation risk. The currency lost as much as 0.8 percent to 9.1662 to the greenback before trading up 0.1 percent to 9.1019.

The yen strengthened after the Bank of Japan maintained its pledge to double its monetary base in two years and didn’t offer additional measures. BOJ Governor Haruhiko Kuroda said no policy maker judged additional easing was needed now, and that adjustments would be made if necessary.

Kuroda announced the program of increased purchases mainly of government bonds after the BOJ’s previous meeting on April 4.

“They haven’t done anything new here,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “The BOJ just reaffirmed the big bang in terms of the quantity of the monetary base. It seems like there’s a little bit less intensity around reaching the 2 percent inflation target.”

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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