Dollar Climbs on Taper Bets Amid Syria Tension; Rupee Tumbles

The dollar gained versus the majority of its 16 most-traded peers this month as the Federal Reserve reiterated its plan to start reducing as early as September monthly bond purchases.

The greenback rebounded against the 17-nation euro after falling the previous two months as the prospect of U.S. military action against Syria deterred risk-taking. India’s rupee posted its biggest monthly loss in 20 years on concern a deepening economic slowdown will deter investors. A Sept. 6 Labor Department report will show that U.S. nonfarm payrolls rose by 180,000 workers in August, according to the median estimate in a Bloomberg survey.

The Fed “has generally kept the tapering calendar in place, which has maintained the shift out of higher-yielding markets back into Group of 10,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said yesterday in a telephone interview. “People also might be buying dollars in anticipation of a potential risk-off move related to a military strike in Syria.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, increased 0.8 percent to 1,034.28 this month in New York, the biggest gain since May.

The U.S. tender gained 0.6 percent to $1.3222 per euro, touching $1.3174, its strongest level in more than a month, and climbed 0.3 percent to 98.17 yen. Japan’s currency appreciated 0.3 percent to 129.80 per euro.

Winners, Losers

The British pound was the biggest winner this month among the greenback’s major counterparts, with a 2.6 percent gain. Mexico’s peso was the biggest loser, sliding 4.3 percent, while the Brazilian real dropped 4 percent.

The euro has rallied 6.2 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, while the dollar rose 5.9 percent. The Australian dollar dropped 11 percent and the yen slipped 7.7 percent to lead decliners.

JPMorgan Chase & Co.’s G-7 Volatility Index increased to 10.13 percent after touching 10.19 percent on Aug. 27, the highest intraday level since July 17.

The JPMorgan Emerging Markets Currency Index fell 3.1 percent in August, the biggest drop since May. The gauge declined on Aug. 28 to its lowest level since March 2009.

Traders increased bets the yen will weaken, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain -- so-called net shorts -- was 78,353 on Aug. 27, compared with 71,721 a week earlier.

Syria Situation

The dollar advanced as demand for safer assets increased following a U.S. intelligence assessment that concluded with “high confidence” that the Syrian regime carried out a chemical attack that killed 1,429 people earlier this month in a Damascus suburb, Secretary of State John Kerry said at the State Department as the four-page report was released.

The Syrian attack is “a challenge to the world,” President Barack Obama said in brief remarks at the White House. He added that he hasn’t made a final decision on his response, and that “in no event” will it involve U.S. troops on the ground in Syria.

“This week has been obviously risk-off, calibrated by a stern speech in regards to Syria,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc. (8411), said yesterday in a phone interview.

Rupee, Lira

Fed Chairman Ben S. Bernanke triggered a plunge in emerging-market assets when he signaled May 22 that the central bank was preparing to reduce its $85 billion of monthly bond purchases, which may debase the currency. The minutes of the Fed’s July meeting, released on Aug. 21, showed Fed policy makers were “broadly comfortable” in tapering this year if the economy strengthens.

Officials will reduce the amount at their next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.

India’s rupee and Turkey’s lira dropped to record lows last week amid the capital flight as the prospect of an expanded Middle East conflict further damped demand for emerging-market currencies.

The rupee pared its loss on Aug. 29 after the Reserve Bank of India said it will provide foreign currency to state-run Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., which the central bank will later repurchase.

‘Risk Aversion’

“Investors have suddenly ramped up their risk aversion to a very high degree,” Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York, said in an Aug. 28 radio interview on “Bloomberg Surveillance” with Tom Keene. “We favor the U.S., but what the market is looking for is low beta economics, low beta markets.” Beta is a measure of volatility.

The rupee decreased 8.1 percent, its biggest-ever monthly drop, to 65.7050 per dollar. It hit a record low of 68.8450 on Aug. 28. Turkey’s currency slipped 5.1 percent to 2.0381 per dollar after falling to 2.0730 on Aug. 28.

The British pound had the biggest monthly gain versus the euro in since January as Bank of England Governor Mark Carney said forward guidance will help the economic recovery in his first policy speech since taking over on July 1. He also said the BOE is focused on sustaining the economic recovery despite the “inevitable shocks ahead.”

The central bank’s Monetary Policy Committee meets on Sept. 5, the same day as the European Central Bank. It has introduced the guidance to prevent a pickup in borrowing costs from undermining the economic recovery.

The pound rose 2.6 percent to 85.29 pence per euro in August. Sterling appreciated 2 percent to $1.5504, its largest monthly gain since April.

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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