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Dollar Rises as Economic Data Above Forecasts Bolsters Fed View

The dollar rose against the euro for a fifth day after the U.S. reported stronger-than-forecast economic data, spurring speculation the Federal Reserve will reduce bond purchases.

The greenback erased an earlier loss as U.S. factory orders rose more than forecast in May and consumer confidence (CONCCONF) for June exceeded projections. The 17-nation currency weakened as European Central Bank President Mario Draghi said the euro-area economy’s condition still requires a stimulative monetary policy. Sweden’s krona rose from the weakest since November against the dollar as producer prices fell less in May than economists forecast.

“Some good economic news helped the dollar versus the G-7,” Mike Moran, a senior currency strategist at Standard Chartered Plc in New York, said in a telephone interview. “It really helped take some anxiety away from the tapering debate, which has really been the dominant theme. It reminded investors of the underlying U.S. economy, where we’ve seen pockets of growth relative to other global economies.”

The U.S. currency appreciated 0.3 percent to $1.3077 per euro at 5 p.m. in New York, after earlier declining as much as 0.2 percent. The greenback increased 0.1 percent to 97.81 yen after falling 0.8 percent. The euro slipped 0.2 percent to 127.93 yen.

Market Periods

The yen has gained 2.7 percent to the greenback this month, while Norway’s krone has declined 3.6 percent. This quarter, the euro has led all major gainers with a 2.1 percent increase, while the worst-performing Australian dollar has slipped 11 percent. The greenback is the best-performing currency in 2013 and South Africa’s rand has plunged 16 percent.

The Swedish krona rose for the first time in five days as Statistics Sweden said producer prices fell 0.1 percent in May from April, when they dropped 1.1 percent. Economists surveyed by Bloomberg predicted a decline of 0.2 percent.

The krona climbed 0.7 percent to 6.7148 per dollar after sliding yesterday to the weakest since Nov. 16.

The Malaysian ringgit strengthened versus all 31 of its most-traded counterparts, rebounding from a three-year low, as some investors judged this month’s losses excessive. The currency appreciated 1.2 percent to 3.1825 per dollar, the biggest gain in more than seven weeks.

Option Positions

Trading in over-the-counter foreign-exchange options totaled $25.2 billion, compared with $31.9 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 $4.5 billion, the largest share of trades at 18 percent. Euro-dollar options were the second most-actively traded, at $3.5 billion, or 14 percent.

Dollar-yen options trading was 42 percent below the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was average.

Volatility in currencies surged since the Fed signaled last week it may start reducing stimulus this year. JPMorgan Chase & Co.’s Group of Seven Volatility Index, based on currency option premiums, reached 11.82 percent after rising to 11.96 percent yesterday, the highest since January 2012.

Fed Policy

Chairman Ben S. Bernanke said June 19 the Fed may begin tapering bond purchases this year and end them in mid-2014. The central bank has been buying $40 billion of mortgage-backed securities and $45 billion of U.S. government debt each month to put downward pressure on borrowing costs.

“What we’re talking about here is dialing back,” Richard Fisher, president of the Fed Bank of Dallas, said in London yesterday. “The word ‘exit’ is not appropriate here,” he said. Minneapolis Fed President Narayana Kocherlakota said yesterday the Fed must emphasize in its statement that policy will remain accommodative “for a considerable time.”

Bookings for goods meant to last at least three years climbed 3.6 percent for a second month, the Commerce Department reported today in Washington. The median forecast of 81 economists surveyed by Bloomberg called for a 3 percent increase.

Confidence among U.S. consumers climbed in June to 81.4, the highest level in more than five years, exceeding all estimates in a Bloomberg survey and signaling spending will probably accelerate after cooling this quarter. The median forecast of 77 economists surveyed by Bloomberg called for a reading of 75.1.

Economic View

“The stronger U.S. numbers are boosting the dollar,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a phone interview. “With the Fed’s tapering signal being strongly data-dependent, markets will continue to be particularly sensitive to high-frequency U.S. data.”

The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the U.S. currency against those of six trading partners, gained 0.2 percent to 82.611, after climbing yesterday to the strongest since June 5.

John Taylor, the founder of foreign-exchange hedge fund FX Concepts LLC, who previously called for the euro to weaken to parity versus the dollar, has become bullish on the 17-nation currency.

“The fact of the matter is, if you’re running a large trade surplus, if capital inflows are large, and if your central bank is tight -- and that one is tighter than the U.S. -- then your currency just won’t go down,” Taylor said during an interview on Bloomberg Television’s “Surveillance” with Tom Keene and Sara Eisen. “Even I own the euro.”

Hedge funds and other large speculators last week shifted their bets to an advance for the euro against the dollar for the first time since February, figures from the Washington-based Commodity Futures Trading Commission show.

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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