Dollar Drops 5th Day as Trading Patterns Show Weakness

The dollar fell for a fifth day on speculation economic gains may not be enough to spur the Federal Reserve to reduce stimulus measures next month and as trading patterns signaled further weakness for the currency.

The greenback dropped to a seven-week low versus the euro as it approached an area where sell orders may be clustered. The 17-nation European currency gained against the yen before a report next week that analysts said will show the euro-area economy returned to growth in the second quarter. South Africa’s rand climbed versus all of its 16 major counterparts as demand for higher-yielding assets increased.

The market “is recalibrating its tapering expectations and seeing less chance for it to happen in September,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview of the dollar’s decline. “Even when it does begin, it may not be as aggressive as the market expected.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major counterparts, fell 0.4 percent to 1,017.11 at 5 p.m. in New York after touching 1,015.49, the lowest level since June 19.

The euro rose 0.3 percent to $1.3381 after climbing to $1.34, the highest level since June 19. The shared currency added 0.7 percent to 129.36 yen. The yen fell 0.4 percent to 96.67 per dollar after weakening 0.6 percent and strengthening 0.5 percent.

Technical Levels

The Dollar Index, which IntercontinentalExchange Inc. uses to monitor the greenback against the currencies of six major U.S. trading partners, fell 0.3 percent to 81.039. It breached at 81.58 its 200-day moving average, considered a measure of momentum by some traders, and faces a test of an uptrend dating back to May 2011 at 80.70.

“On the euro-dollar side, we’re approaching very much a big zone where the stop-losses are,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “People are probing this area.” A stop is a pre-established order to buy or sell when a specific price level is reached.

German exports, adjusted for working days and seasonal changes, rose 0.6 percent from May, when they dropped a revised 2 percent, the Federal Statistics Office said today in Wiesbaden. Chinese shipments overseas climbed 5.1 percent in July from a year earlier after sliding 3.1 percent in June, according to the General Administration of Customs in Beijing.

Euro-area gross domestic product expanded 0.2 percent in the second quarter, after contracting for the previous six quarters, according to the median estimate in a Bloomberg survey before the report is released on Aug. 14.

Global Growth

“As global-growth expectations pick up, the euro is benefiting,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “Positive China data boosts the euro on signs of a global recovery and we’ve had reasonable German data. The euro could continue to remain elevated.”

The euro has strengthened 5.6 percent this year, the best performer of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 3.9 percent, while the yen tumbled 7.9 percent.

The Aussie advanced for a fourth day versus the U.S. currency as traders pared bets the Reserve Bank of Australia will lower the benchmark interest rate.

Australia’s dollar gained 1.2 percent to 91.05 U.S. cents after climbing to 91.35, the highest since July 30.

The rand jumped 1 percent to 9.8684 per dollar after sliding 1.3 percent during the previous three days.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $25 billion, compared with $30 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 $8.5 billion, the largest share of trades at 34 percent. Options on the Australian dollar-U.S. dollar rate totaled $2.5 billion, or 10 percent.

Dollar-yen options trading was 38 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Aussie-greenback options trading was 27 percent more than average.

The yen fluctuated versus the dollar after Bank of Japan Governor Haruhiko Kuroda’s board stuck with an April pledge to expand the monetary base by 60 trillion yen ($622 billion) to 70 trillion yen per year.

‘Dollar Weakness’

The fewest workers applied for U.S. unemployment benefits over the past month since before the last recession, indicating the labor market is making progress. Payrolls rose by 162,000 workers in July, the fewest in four months, following a 188,000 increase in June, data showed last week. The jobless rate dropped to a more than four-year low of 7.4 percent from 7.6 percent.

Fed Bank of Cleveland President Sandra Pianalto said yesterday that there has been “meaningful improvement” in the labor market and that a tapering of the central bank’s bond-buying program may be warranted if it continues to strengthen.

“We’re seeing more of a dollar weakness across the board,” Sireen Harajli, a foreign-exchange strategist at Mizuho Bank in New York, said in a telephone interview. “You’re getting mixed messages -- I think markets are trying to determine or forecast what the Fed’s going to do. That’s why you see a little bit of uncertainty.”

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

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

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