Dollar Advances With September Taper Seen Intact; Lira Slumps

The dollar gained against the majority of its 16 most-traded peers as a worse-than-forecast U.S. report on durable goods failed to damp speculation the Federal Reserve will start cutting bond purchases next month.

The Bloomberg U.S. Dollar Index pared an advance after after Secretary of State John Kerry said the president will hold Syria’s government accountable for the “moral obscenity” of using chemical weapons. The Turkish lira dropped to the weakest level on record as the central bank provided funds to banks at its benchmark rate for the first time in six days. The Mexican peso slumped the most among the major currencies on concern Fed tapering will speed the flow of cash out of emerging economies.

“It was clearly weak data, so the initial market response was correct,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “But is this really sufficient to change the base case view of tapering in September? In hindsight, it could explain why the dollar drifted back because it’s not a smoking gun towards no tapering.”

The Bloomberg U.S. Dollar Index gained 0.1 percent to 1,027.53 at 5 p.m. in New York. It advanced to 1,031.37 on Aug. 22, the highest since Aug. 2.

The dollar fell 0.2 percent to 98.51 yen after tumbling as much as 0.6 percent earlier. The U.S. currency advanced 0.1 percent to $1.3368 per euro after depreciating 0.4 percent last week. The euro fell 0.3 percent to 131.69 yen.

Financial markets were closed in London due to a public holiday.

Kerry, Syria

The dollar extended losses against the yen after Kerry told reporters in Washington President Barack Obama “believes there must be accountability for those who would use the world’s most heinous weapons against the world’s most vulnerable people.”

Obama hasn’t decided whether the U.S. will take military action in Syria, according to an administration official who asked for anonymity to discuss internal deliberations.

“Kerry’s statement says the Obama administration is considering laying the groundwork for certain military action -- certainly the stake is bigger and higher here,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview. “The potential threat of military action might be the No. 1 driver in flight to safety.”

Lira Slumps

Turkey’s lira fell to as low as 1.9995 per dollar and was down 0.5 percent to 1.9967 in Istanbul.

“The central bank provided liquidity and this added to negative factors,” Burcin Metin, head of currency trading at ING Bank AS in Istanbul, said by phone. “There are no reasons at the moment to be positive about the Turkish lira.”

India’s rupee fell for the seventh time in eight days after Finance Minister Palaniappan Chidambaram was reported by the Times of India on the weekend as saying it was too early to comment on the result of measures to halt the currency’s slide.

India’s rupee slumped 1.5 percent to 64.3063 per dollar after depreciating to a record-low 65.56 on Aug. 22.

Mexico central-bank Governor Agustin Carstens last week asked the Fed to clarify plans for tapering its monthly bond purchases, saying the prospect of a withdrawal of stimulus poses the “most pressing challenge” for emerging economies. The currency weakened 1.8 percent to 13.1891 versus the U.S. dollar.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $16 billion, compared with $17 billion on Aug. 23, 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 $4.6 billion, the largest share of trades at 29 percent. Options on the euro-dollar rate totaled $1.7 billion, or 11 percent.

Greenback-yen options trading was 12 percent more than the average for the past five Mondays at a similar time in the day and euro-dollar trading was 8 percent less, according to Bloomberg analysis.

Australian-Canadian dollar options trading, at $452 million, was 3,930 percent above average. The Aussie gained as much as 0.5 percent to 95.27 Canadian cents before trading little changed at 94.82.

The dollar fell earlier as bookings for goods meant to last at least three years decreased 7.3 percent, the most since August 2012, after a 3.9 percent gain in June, the Commerce Department said today in Washington. The median forecast of economists surveyed by Bloomberg called for a 4 percent drop. Orders waned for aircraft and capital goods such as computers and electrical equipment.

‘Softer Note’

The durable-goods report “does suggest that in the third quarter, overall business investment might be somewhat starting off on a softer note than some forecasters may have anticipated,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview. “I wouldn’t necessarily see big extension of dollar losses on the back of that. But without much more to go on today, it’s providing some motivation for shorter-term dollar weakness.”

The Fed’s debate over when it will slow its $85 billion in monthly bond purchases known as quantitative easing has roiled global financial markets over the past three months. U.S. policy makers hold their next meeting on Sept. 17-18.

The dollar strengthened 4.9 percent this year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The euro is the best performer, rising 6.4 percent, while the yen slumped 9 percent.

To contact the reporter on this story: Andrea Wong in New York at awong268@bloomberg.net

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

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