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Euro Gains on Manufacturing Expansion; Dollar Climbs Versus Yen

The euro advanced against the majority of 16 most-traded peers after purchasing-manager indexes showed manufacturing in the currency bloc unexpectedly expanded in July, bolstering demand for the region’s assets.

The dollar climbed versus the yen for the first time in three days as U.S. Treasury yields increased, boosting the greenback’s allure. The euro slipped versus the American currency after data showed U.S. sales of new homes rose more than forecast. The European Central Bank meets Aug. 1. A gauge of volatility among Group-of-Seven currencies was up for the first time in 10 days. New Zealand’s dollar gained as the nation’s central bank held its key interest rate at 2.5 percent.

“We saw the PMI readings surprise to the upside,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “If we see a pickup in growth, the ECB policy makers might not need to implement additional tools under consideration, and that’s something from a policy standpoint that’s going to support the currency.”

The euro gained 0.7 percent to 132.35 yen at 5 p.m. New York time and touched 132.74, the strongest since May 23. Europe’s common currency advanced as much as 0.3 percent to $1.3256, the highest level since June 20, before falling 0.2 percent to $1.3201. The dollar rose 0.8 percent to 100.27 yen.

Benchmark U.S. 10-year (USGG10YR) note yields touched 2.62 percent, the highest level in more than a week, as prices fell amid speculation the Federal Reserve will reduce its bond purchases this year as the economy improves. Yields on comparable Japanese (GJGB10) government debt touched 0.77 percent for a second day, the lowest level since May 14.

Volatility Increases

JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of currency fluctuations, rose to 9.4 percent after falling earlier to 9.11 percent, the least since May 9. The gauge climbed to this year’s high of 11.96 percent on June 24.

Trading in over-the-counter foreign-exchange options totaled $24 billion, compared with $24 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 $3.4 billion, the largest share of trades at 14 percent. Options on the Australian-U.S.-dollar rate totaled $2 billion, or 9 percent.

Dollar-yen options trading was 47 percent less than the average for the past five Wednesdays at a similar time in the day, according to Bloomberg analysis. Aussie-U.S.-dollar options trading was 18 percent less than average.

New Zealand’s dollar rose 0.5 percent to 79.66 U.S. cents.

Aussie, Real

The Australian dollar and Brazilian real slid versus most major currencies after manufacturing in China, both nations’ biggest trading partner, contracted more than forecast. The reading of 47.7 for July in a purchasing-managers index released by HSBC Holdings Plc and Markit Economics, if confirmed in the final report Aug. 1, would be the lowest in 11 months.

“Troubling developments in China are a burden upon the Australian dollar,” Neil Mellor, a currency strategist at Bank of New York Mellon in London, wrote in a note to clients.

The Aussie dropped 1.4 percent to 91.63 U.S. cents after declining to 89.99 cents on July 12, the weakest level since September 2010.

Brazil’s currency lost against the greenback for the first time in three days, sliding 1.6 percent to 2.2505 per dollar and reaching 2.2573, the weakest since July 17.

The euro gained after manufacturing gauges for the 17-nation region and for Germany (PMITMGE), its biggest economy, unexpectedly showed expansion. The index for the euro area rose to 50.1 from 48.8 in June, London-based Markit Economics said. Economists in a Bloomberg survey predicted 49.1. A level above 50 signals expansion. In Germany, the gauge rose to 50.3, from 48.6 in June, Markit said. A Bloomberg survey forecast a rise to 49.2.

‘Upside Surprises’

“If you look at how euro-region data has progressed recently, we’ve tended to see more upside surprises,” said Steve Barrow, head of Group of 10 research at Standard Bank Plc in London. “There’s a relative improvement in the perception of euro-zone data, which is helping the euro.”

The shared currency has advanced 2.9 percent in the past three months among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 0.5 percent, and the dollar gained 1.4 percent.

ECB President Mario Draghi said after policy makers’ last meeting that options for further easing include charging banks for depositing money, reviving the market for asset-backed securities and providing investors with greater guidance on interest rates. The benchmark rate is a record-low 0.5 percent.

Rupiah Slides

Indonesia’s rupiah slumped to a four-year low on concern the current-account deficit will widen as export demand wanes.

The currency declined 0.6 percent to 10,260 per dollar after depreciating to 10,276, the weakest level since July 2009. It dropped yesterday by the most in 13 months as Bank Indonesia allowed a more rapid decline toward levels quoted in the offshore market.

The Bloomberg Dollar Index extended a gain after sales of new U.S. homes rose more than forecast to the highest level in five years. Purchases (NHSLTOT) climbed 8.3 percent to an annualized pace of 497,000 homes, the Commerce Department said today in Washington, from a revised 459,000 in May. The median estimate of economists in a Bloomberg survey was for a gain to 484,000.

The currency gauge, which tracks the greenback against 10 other major currencies, rose 0.5 percent to 1,030.94 after falling to 1,025.46 yesterday, the lowest since June 20.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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