Dollar Advances as Jobless Report Spurs Fed Taper Expectations

The dollar gained versus all 16 of its most-traded counterparts as claims for jobless benefits fell to a five-year low, adding to speculation that the Federal Reserve will slow the pace of monthly asset purchases this year.

The euro dropped from a six-week high against the dollar as European Central Bank President Mario Draghi said policy makers expect interest rates in the region to stay low for an extended period. The greenback extended its gain against the yen before a Labor Department report tomorrow that will show U.S. nonfarm payrolls rose by 185,000 workers in July, according to the median forecast in a survey conducted by Bloomberg. The Swedish krona slumped after factory orders slowed.

“The U.S. data today was very strong, and it points ahead to a stronger NFP,” Dan Dorrow, head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “The data confirmed expectations that the Fed will soon be taking action on tapering.”

The U.S. currency appreciated 0.7 percent to $1.3210 per euro at 5 p.m. in New York after rising as much as 0.8 percent, the most since July 9. The greenback climbed 1.7 percent to 99.48 yen, the biggest jump on a closing basis since April 8. Japan’s currency declined 1 percent to 131.46 per euro.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.9 percent to 1,034.46 after declining 1.4 percent last month.

Krona, Koruna

Sweden’s currency weakened against all except one of its 16 major peers as Swedbank AB (SWEDA) said a manufacturing index based on responses from purchasing managers fell to a seasonally adjusted 51.3 in July from 53.5 the previous month. Economists surveyed by Bloomberg predicted a reading of 53.

The krona slumped 1.4 percent to 6.609 per dollar and weakened 0.6 percent to 8.7223 per euro.

The Czech koruna declined versus most of its major peers as central-bank Governor Miroslav Singer said at a news conference in Prague that the likelihood of monetary intervention is rising. The currency fell 1 percent to 19.6853 per dollar. It decreased 0.2 percent to 25.99 per euro.

The pound rose from the weakest since March versus the euro as the Bank of England’s nine-member Monetary Policy Committee left monetary policy unchanged and as a gauge of manufacturing rose more in July than economists forecast.

The pound appreciated 0.1 percent to 87.35 pence per euro after earlier sliding to 87.70, the weakest level since March 12. The U.K. currency fell 0.6 percent to $1.5120.

‘Downside’ Risks

“The risks surrounding the economic outlook for the euro area continue to be on the downside,” Draghi said at a press conference in Frankfurt after the rate decision was announced. “Looking ahead, our monetary-policy stance will remain accommodative for as long as necessary.”

The euro has strengthened 4.3 percent in the past three months, the best performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, amid signs the region is emerging from its longest-ever recession. The yen rose 1.2 percent and dollar advanced 3.1 percent.

“There has been an increasing level of frustration pertaining to economic growth in the euro zone emanating from the financial markets,” Ravi Bharadwaj, a senior market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a telephone interview. “That’s weighing on the euro.”

Jobless Claims

The dollar climbed the most in almost four weeks against the yen as the Labor Department said initial claims for jobless benefits unexpectedly declined by 19,000 to 326,000 in the week ended July 27, the fewest since January 2008.

“We had much better-than-expected U.S. employment results, which are helping to guide the dollar strength we’re seeing,” Bharadwaj said. “Any upside surprises we see from tomorrow’s economic reports will also play very strongly into the dollar’s favor and increase changes of taper by the end of the year.”

The greenback extended gains after the Institute for Supply Management’s U.S. factory index increased to 55.4, the strongest since June 2011 and exceeding the highest projection in a Bloomberg survey of economists, after 50.9 in the prior month. Readings above 50 indicate expansion.

The yen declined after the Ministry of Finance said Japanese investors bought 233.2 billion yen ($2.3 billion) more of overseas bonds and notes than they sold last week.

Stimulus Plan

Bank of Japan Governor Haruhiko Kuroda in April unveiled a plan to buy more than 7 trillion yen of Japanese debt a month to spur the economy and end deflation. He has said the policy would prompt domestic investors to rebalance their portfolios by purchasing foreign bonds and other assets.

Trading in over-the-counter foreign-exchange options totaled $29 billion, compared with $25 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 $3.9 billion, the largest share of trades at 14 percent. Options on the dollar-Chinese yuan rate totaled $3.2 billion, or 11 percent.

Dollar-yen options trading was 43 percent less than average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 139 percent more than the average.

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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