Dollar Falls Second Day Against Yen on Fed Outlook; Kiwi Slides

The dollar fell for a second day against the yen as investors weighed when the Federal Reserve will slow the pace of bond purchases that have contributed to weakening the greenback.

The U.S. currency dropped against the majority of its 16 most-traded peers after a government report last week showed American employers hired fewer workers in July than economists predicted. The yen strengthened today as Japanese stocks slid, spurring demand for the safety of the nation’s currency. The pound rose as U.K. services growth accelerated. New Zealand’s dollar slumped after China halted imports of milk powder from Auckland-based Fonterra Cooperative Group Ltd.

“That employment report, it wasn’t the greatest, the Fed didn’t give any indication in terms of providing any guidance on when tapering could occur,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “We also have the Bank of Japan meeting this week. We’re not expecting the BOJ to be taking any measures any time soon, so that could also be a reason there for the consolidation we’re seeing in these yen crosses.”

The dollar dropped 0.7 percent to 98.30 yen at 5 p.m. New York time after sliding 0.6 percent on Aug. 2. The U.S. currency rose 0.1 percent to $1.3258 per euro. The yen strengthened 0.8 percent to 130.33 per euro after depreciating to 132.74 on July 24, the weakest level since May 23.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major counterparts, fell 0.2 percent to 1,027.04 after sliding 0.6 percent on Aug. 2.

Pound, Kiwi

The pound strengthened for a second day against the dollar as the U.K. services data added to signs Britain’s economy is gathering momentum.

The currency advanced 0.4 percent to $1.5356 after jumping 1.2 percent on Aug. 2, the biggest gain since June 6. Sterling appreciated 0.6 percent to 86.34 pence per euro.

The kiwi fell for a sixth day against the U.S. currency after Fonterra, the world’s largest dairy exporter, said on Aug. 3 that three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause botulism.

New Zealand’s dollar tumbled 0.2 percent to 78.24 U.S. cents after falling to 76.84 cents on June 24, the weakest level since June 2012.

Sweden’s krona jumped after an index showed the services industry unexpectedly expanded in July, signaling an accelerating recovery in the largest Nordic economy. The krona gained 0.5 percent against the euro to 8.7266. It climbed 0.4 percent against the dollar to 6.5821.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $19 billion, compared with $33 billion on Aug. 2, 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 $4.1 billion, the largest share of trades at 21 percent. Options on the Australian-U.S.-dollar rate totaled $3.2 billion, or 17 percent.

Dollar-yen options trading was 40 percent less than the average (NKY) for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Aussie-U.S.-dollar options trading was 56 percent more than average.

U.S. nonfarm payrolls rose by 162,000 in July, the smallest gain in four months, the Labor Department said Aug. 2. Economists surveyed by Bloomberg projected 185,000.

On Table

The payrolls number “kept tapering on the table,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “Maybe it gave people reason to question whether September was a little early -- is December more likely? But I think it’s still a 2013 event as opposed to 2014.”

The dollar briefly trimmed losses after the Institute for Supply Management’s U.S. non-manufacturing index increased to 56 July from 52.2 the prior month, a report from the Tempe, Arizona-based group showed today. The median forecast in a Bloomberg survey of economists called for a gain to 53.1. Readings higher than 50 indicate growth in the industries that make up almost 90 percent of the economy.

Fed Chairman Ben S. Bernanke said on June 19 the central bank may start dialing back its bond-buying program this year if the economy achieves sustainable growth. It has been buying $40 billion of mortgage-backed bonds and $45 billion of Treasuries each month to inject cash into the economy. The Fed has kept its benchmark lending rate at zero to 0.25 percent since 2008 to help cap borrowing costs.

‘Zero Rates’

“The markets have got used to the idea that we’re not staying at zero rates forever with quantitative easing forever, but we’re not going to start even thinking about rate hikes on a one-, two-year horizon unless the economy sees a faster pace of economic growth,” Kit Juckes, a global strategist at Societe Generale SA in London, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene. “We’re going to get a slower pace of bond purchases from back end of September onwards and by this time next year they won’t be buying any bonds.”

Half of the 54 economists in a July 18-22 Bloomberg survey expected the Fed to decide to reduce the bond purchases at its next meeting on Sept. 17-18.

Bank of Japan Governor Haruhiko Kuroda will hold a press conference on Aug. 8 after the BOJ’s two-day policy meeting.

The yen rose against all except one of its 16 major peers as the Nikkei 225 Stock Average slid 1.4 percent.

The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus makes the country less reliant on foreign capital.

The dollar has gained 5 percent in the past six months, the best performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2.7 percent, while the yen weakened 0.5 percent.

To contact the reporters on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net; John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.