Dollar Falls Versus Major Peers on Syria Talks, Fed Speculation

The dollar fell versus all its 16-most-trade peers except the yen as U.S. and Russian officials debated a resolution to tensions in Syria and investors bet on more modest stimulus reductions by the Federal Reserve.

An equally weighted basket emerging-market currencies rallied to the highest in a month before the U.S. central bank debates tapering the $85 billion-per-month bond purchases it uses to lower borrowing costs at its meeting Sept. 17-18. President Barack Obama delayed a possible U.S. military intervention against the Syria regime’s use of chemical weapons to consider a Russian proposal. The British pound touched its highest level in more than seven months on speculation the nation’s economic recovery is quickening.

The greenback fell on “positioning ahead of the Fed,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “The moderating of tensions in Syria helped fan risk appetite and put the dollar under pressure against its riskier rivals.”

The Bloomberg U.S. Dollar Index, which tracks the performance of a basket of 10 leading global currencies against the dollar, fell 0.7 percent this week to 1,023.95 in New York, the biggest decline since the period ending Aug. 9.

Market Prices

The dollar weakened 0.9 percent to $1.3294 per euro. The U.S. currency rose 0.3 percent to 99.38 yen. Japan’s currency lost percent 1.1 to 132.10 versus Europe’s 17-nation common tender.

Currency volatility as measured by JPMorgan Chase & Co.’s G-7 Volatility Index touched 9.05 percent on Sept. 10, the lowest since Aug. 12.

Traders decreased bets the euro will gain against the dollar to the least in a month, 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 gain in the currency compared with those on a loss -- known as net longs -- was 12,696 on Sept. 10, compared with 22,738 a week earlier.

The U.K. currency advanced versus all of its 16 major peers before the Bank of England releases the minutes of its September meeting next week amid speculation policy makers may have to raise interest rates sooner than they have projected. Data earlier this week showed the unemployment rate unexpectedly fell and July construction output rose at its fastest pace in three months.

The pound gained 1.6 percent to $1.5876, reaching to the highest level since Jan. 23.

Krone Weakens

Norway’s krone rallied as central bank will leave interest rates unchanged at 1.5 percent when it announces its next decision on Sept. 19, according to economists surveyed by Bloomberg.

The krone gained 2.4 percent to 5.9314 per dollar.

An equally weighted basket of so-called BRICS emerging-market currencies rallied for a second week. BRICS refers to Brazil, Russia, India, China and South Africa.

“Things were at the margin better, just on the dispensation of Syria tensions and the improvement in data, especially in Asia,” Brad Bechtel, the managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “Risk was firming, people were putting emerging-market positions back on.”

The Fed will slow its monthly asset purchases to $75 billion from $85 billion at its next meeting on Sept. 17-18, according to a Bloomberg survey of economists on Sept. 6. Policy makers have pledged to keep their benchmark interest rate near zero at least as long as unemployment exceeds 6.5 percent and the outlook for inflation is no more than 2.5 percent.

Economic Outlook

The central bank will release its 2016 economic projections next week for the first time, including the outlook for the benchmark rate.

President Barack Obama hasn’t made a decision on whom to nominate as Fed chairman when Ben S. Bernanke steps down in January, White House spokeswoman Amy Brundage said via Twitter. Nikkei reported Obama was set to name Lawrence Summers as Fed chairman, Lael Brainard likely to be named vice chairman.

Retail sales rose 0.2 percent in August, the smallest gain in four months and followed a revised 0.4 percent July gain that was bigger than previously estimated, the Commerce Department reported yesterday in Washington. The median forecast of economists surveyed by Bloomberg called for a 0.5 percent advance. Sales excluding motor vehicles rose 0.1 percent.

Consumer confidence in the U.S. declined in September to the lowest level since April, indicating household spending may take time to pick up. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment this month fell to 76.8 from August’s 82.1. Economists in a Bloomberg survey called for 82, according to the median projection.

Central Bank

“It is not that the data has changed participants’ minds about next week’s FOMC meeting,” Marc Chandler, the global head of currency strategy in New York at Brown Brothers Harriman & Co., wrote in a note about yesterday’s economic data. “Instead, it reinforces suspicions of a less aggressive slowing of asset purchase.”

The greenback has appreciated 3.9 percent this year, the best performer after the euro of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 4.8 percent and the yen slumped 10.6 percent.

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

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

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