Dollar Index Ends 5-Day Win Streak Amid Weak Data; Rand Slumps

The Dollar Index (DXY) snapped a five-day rally, the longest since February, after weaker-than-forecast reports on U.S. unemployment claims, housing and inflation damped bets the Federal Reserve will slow its bond purchases.

The gauge pared losses after Fed Bank of San Francisco President John Williams said the central bank may begin tapering the pace of its bond buying as soon as this summer. The euro fell earlier after data confirmed inflation in the euro region slowed in April to a three-year low. South Africa’s rand slid to the weakest since 2009 on concern growth will falter.

“U.S. economic data is taking a turn for the worse, and the disappointments have prevented the greenback from extending its gains against the euro and Japanese yen,” Kathy Lien, managing director of foreign exchange at BK Asset Management, an investment advisory firm in New York, wrote in a client note. “Investors are concerned but not overly distressed.”

The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the greenback against the currencies of six U.S. trade partners, fell 0.1 percent to 83.779 at 5 p.m. in New York. It slid 0.5 percent earlier, the most since May 8, to 83.448 after reaching 84.094 yesterday, the highest since July.

The dollar was little changed at 102.23 yen after falling as much as 0.4 percent earlier. It touched 102.76 yen yesterday, the strongest level since October 2008. The U.S. currency traded at $1.2882 per euro after weakening 0.3 percent earlier. It touched $1.2843 yesterday, the strongest level since April 4. The euro was little changed at 131.73 yen.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $42 billion, compared with $51 billion yesterday, 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 $9.4 billion, the largest share of trades at 23 percent. Euro-dollar options were the second most-actively traded at $5 billion, or 12 percent.

Euro-dollar options trading was 45 percent above the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 11 percent below average.

South Africa’s rand sank to a four-year low on concern that falling metals prices and labor unrest threaten the nation’s credit rating and economic growth. The currency declined 0.7 percent to 9.3214 per dollar after sliding as much as 1.4 percent to 9.3836, its weakest level since April 2009.

Lira Pares

Turkey’s lira pared most of its loss against the dollar after Moody’s Investors Service upgraded the nation’s government-bond ratings to Baa3, from Ba1. The currency fell earlier to the weakest since June as the country’s central bank reduced interest rates more than forecast.

The lira traded at 1.8240 per dollar, down 0.1 percent, after weakening earlier as much as 0.9 percent to 1.8388.

The dollar gained earlier this week against most major peers after data showed U.S. retail sales unexpectedly increased in April, spurring bets the Fed will slow its bond buying under the quantitative-easing stimulus strategy. The central bank purchases $85 billion of Treasury and mortgage debt a month.

The U.S. unemployment rate fell to 7.5 percent in April, from 7.8 percent in September.

“It’s clear that the labor market has improved since September,” when the Fed began its latest round of asset purchases, the San Francisco Fed’s Williams said today in a speech in Portland, Oregon. “We could reduce somewhat the pace of our securities purchases, perhaps as early as this summer” and end the program late this year.

The Fed has pumped up its balance sheet to $3.32 trillion.

Manufacturing Gauge

The greenback slipped earlier today against the euro as the Fed Bank of Philadelphia (OUTFGAF)’s general economic index unexpectedly fell to minus 5.2 in May from 1.3 the prior month. Readings less than zero signal contraction in the region. Economists surveyed by Bloomberg called for a gain to 2.

Initial jobless claims jumped by 32,000 to 360,000 in the week ended May 11, the most since the end of March, Labor Department figures showed. New-home starts slumped 16.5 percent last month, the most since February 2011, the Commerce Department said.

The U.S. consumer-price index decreased 0.4 percent, the biggest drop since December 2008, after falling 0.2 percent in March, Labor Department data showed. Economists surveyed by Bloomberg projected a 0.3 percent decline.

‘Miserable’ Data

“Everything that came out from the U.S. was miserable,” Camilla Sutton, head of currency strategy at Bank of Nova Scotia (BNS) in Toronto, said in a telephone interview. “There was disappointment on every number that was released this morning.”

Russia raised the greenback’s share in its reserves to 45.8 percent, from 45.5 percent a year earlier, according to the Russian central bank’s annual report. The euro had its share cut to 40.4 percent, from 42.1 percent.

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 17-nation currency fell yesterday to a six-week low versus the greenback 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.

“The growth data yesterday plus benign inflation will leave open the question of whether the ECB is going to do more easing,” said Jane Foley, a senior currency strategist at Rabobank International in London.

Australia’s dollar fell against the majority of its 16 most-traded counterparts on concern a slowdown in global growth will hurt commodity prices. The Aussie declined 0.6 percent to 98.40 U.S. cents and reached 97.98, the weakest since June 6.

The Australian currency declined 3.3 percent over the past six months, the second-worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen slumped 20 percent, while the euro increased 3.8 percent and the dollar rose 2.6 percent.

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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