The dollar remained below 100 yen after falling past the level for the first time in almost a month yesterday as investors weighed whether the U.S. recovery is robust enough for the Federal Reserve to scale back stimulus.
The Dollar Index reached an almost one-month low yesterday after a report showed U.S. manufacturing contracted in May at the fastest pace in four years. Private data tomorrow may show the pace of hiring in the world’s largest economy quickened. Australia’s dollar held declines after the nation’s Reserve Bank signaled scope to ease further. South Korea’s won strengthened while the Turkish lira held a five-day slide.
“The QE exit hinges on the recovery in the labor market, so the jobs data this week would be key,” said Noriaki Murao, a managing director of the marketing group at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, referring to the Fed’s quantitative-easing program. “It’s too early to say the long-term weakening trend in the yen has ended.”
The dollar recovered 0.4 percent to 99.88 yen at 6:52 a.m. in London from yesterday, when it touched 98.87, the lowest since May 9. The yen’s four-day, 2.8 percent gain against the greenback was the biggest since July 2011. The euro slid 0.1 percent to $1.3065 from yesterday, when it reached $1.3108, the strongest since May 9. Europe’s shared currency added 0.3 percent to 130.49 yen.
Australia’s dollar fell 0.4 percent to 97.32 U.S. cents. The Aussie dropped to the lowest level since October 2011 on May 29.
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fetched 82.760 from 82.656 yesterday, when it declined to 82.428, a level unseen since May 9.
The Institute for Supply Management’s factory index for the U.S. fell to 49, the lowest reading since June 2009, from the prior month’s 50.7 reading, the Tempe, Arizona-based group’s report showed yesterday. Fifty is the dividing line between growth and contraction.
ADP Research Institute will probably say tomorrow the pace of hiring in the U.S. quickened by 46,000 jobs to 165,000 in May from the previous month, according to the median estimate of economists surveyed by Bloomberg News.
Nonfarm payrolls swelled by 165,000 jobs in April, more than forecast, and the unemployment rate unexpectedly fell to 7.5 percent, the Labor Department reported last month. It will probably say June 7 that employers added 168,000 workers in May, economists forecast.
The Fed is buying $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing stimulus strategy, which tends to debase the dollar.
Fed Chairman Ben S. Bernanke told Congress on May 22 the U.S. central bank could decide at its next few meetings to taper purchases if it’s confident of sustained gains in the economy. At the same time, he said a premature tightening of monetary policy might imperil the recovery.
“Should the U.S. employment number disappoint, that could pour cold water on the argument for the Fed’s tapering of stimulus,” Yunosuke Ikeda, the head of foreign-exchange strategy at Nomura Securities Co. in Tokyo, wrote in a report today.
The exchange rate “remains high considering the decline in export prices that has taken place over the past year and a half,” the RBA said in a statement today.
The Australian dollar’s one-month risk reversal rate rose to minus 2 percentage points, after dropping to minus 2.45 points on May 17, the lowest since June 19 and indicating increased demand for options that grant the right to sell the Aussie versus the greenback.
Demand for the yen was limited after the Nikkei newspaper reported that Japan’s Government Pension Investment Fund, which oversees about 108 trillion yen ($1.08 trillion) in assets, may diversify away from Japanese government bonds. The Cabinet secretariat will set up a panel this month to make recommendations to GPIF on allocations, which may take place in one to two years, Nikkei said without attribution.
Fund President Takahiro Mitani said in a Bloomberg interview in February that GPIF, the world’s biggest manager of retirement savings, would begin talks in April about reducing its 67 percent target allocation to domestic bonds.
“GPIF’s new asset allocation plan may not be adopted for another two years, so it’s a little surprising the dollar was bought back on the news,” said Bank of Tokyo-Mitsubishi UFJ’s Murao.
Japanese investors became net buyers of Australian bonds in May for the first time in nine months, Westpac Banking Corp. (WBC) said. Sovereign investor support for Aussie bonds surged again last month, particularly from Asia, according to a Westpac research note.
Turkey’s lira remained lower on concern days of protest against Prime Minister Recep Tayyip Erdogan will undermine his efforts to overhaul the political system.
The lira was little changed at 1.8828 per dollar, after having weakened 2 percent in the previous five sessions.
The won climbed amid diminished expectations the Fed will taper asset purchases that have fueled demand for emerging-market assets. It rose 0.5 percent to 1,122.45 per greenback, appreciating for a second day.
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