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Dollar Climbs Before Manufacturing, Jobs Reports; Aussie Weakens

The dollar strengthened before reports economists said will show manufacturing in the Philadelphia region expanded, while first-time jobless claims were near the lowest since January 2008.

The U.S. currency rose against all its 16 major counterparts after Federal Reserve Bank of Philadelphia President Charles Plosser said he favors phasing out the central bank’s asset purchases. The euro weakened for a sixth day against the greenback, the longest losing streak in 12 months, after a report confirmed consumer-price inflation in the region slowed to the least in three years in April. Australia’s dollar slid to an 11-month low as commodity prices declined.

“There’s been a change in expectations with respect to the dollar,” said Jane Foley, a senior currency strategist at Rabobank International in London. “May has brought news which is more constructive. If the U.S. continues notching better growth data, it brings in the likelihood that the Fed will start paring its asset purchases.”

The dollar rose 0.4 percent to 102.68 yen at 7 a.m. in New York after climbing to 102.76 yesterday, the strongest since October 2008. The U.S. currency appreciated 0.2 percent to $1.2867 per euro after reaching $1.2843 yesterday, the strongest since April 4. The six-day gain is the longest since May 2012. The single currency advanced 0.3 percent to 132.11 yen.

Manufacturing Expands

The Fed Bank of Philadelphia’s general economic index rose to 2 in May from 1.3 the prior month, according to the median estimate of economists in a Bloomberg survey. Initial jobless claims were at 330,000 in the week through May 11, U.S. Labor Department data will say today, a separate Bloomberg survey showed. That compares with a reading of 323,000 a week earlier, the least since January 2008.

The Fed is buying $85 billion of government and mortgage debt a month to hold borrowing costs down.

“It’s not good for the bank to be holding lots of mortgage paper” and “I would like to see us get out of mortgage-backed securities,” Plosser said in an interview with Manus Cranny on Bloomberg Television in Milan today. “But that’s not going to happen very quickly.”

Plosser, who doesn’t vote on the Federal Open Market Committee until 2014, is in favor of reducing the Fed’s monthly pace of bond purchases as unemployment declines.

Economy Shrinks

The euro fell to a six-week low versus the greenback yesterday on speculation the European Central Bank will have to ease monetary policy further after data showed the region’s economy shrank for a record sixth quarter.

Gross domestic product in the euro area contracted 0.2 percent last quarter, while the German economy grew 0.1 percent, less than the 0.3 percent prediction in a Bloomberg survey. ECB President Mario Draghi pledged on May 2 to ease policy again if needed after officials cut their benchmark interest rate to record 0.5 percent to spur growth.

“The growth data yesterday plus benign inflation will leave open the question of whether the ECB is going to do more easing,” Rabobank’s Foley said. The U.S. economy’s “contrast with the euro region is quite marked.”

The euro area’s annual inflation rate declined to 1.2 percent in April from 1.7 percent in March, the European Union’s statistics office said today, confirming the estimate released on April 30. That’s the lowest rate since February 2010.

The extra yield investors demand to hold 10-year Treasuries over similar-maturity German bunds expanded to 60 basis points, or 0.6 percentage point, on May 14, the widest since June 2010, based on closing-price data.

‘Dollar’s Favor’

“The relative performance of the economy and the yield differential is working in the dollar’s favor,” said Junichi Ishikawa, an analyst at IG Markets Securities Ltd. in Tokyo. “I wouldn’t be surprised to see the euro drop to $1.275.”

The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the currency against those of six major U.S. trade partners, climbed 0.1 percent to 83.946 after rising to 84.094 yesterday, the highest level since July 24.

The dollar has strengthened 5 percent this year, the best performer of 10 developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2.1 percent and the yen tumbled 13 percent.

Australia’s dollar weakened against all except two of its 16 major counterparts on concern a slowdown in global growth will hurt commodity prices.

The Standard & Poor’s GSCI Index (SPGSCI) of 24 commodities dropped for a fifth day, sliding 0.3 percent to 623.11, damping the outlook for the South Pacific nation’s exports.

“The Australian dollar has a little bit more room to fall in the near term,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “Declines in commodity prices are negative” for the currency, he said.

The so-called Aussie declined 1 percent to 98.01 U.S. cents after sliding to 97.98, the weakest since June 6.

To contact the reporters on this story: David Goodman in London at dgoodman28@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

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