Dollar Holds Gains Versus Euro Before Jobs, Factory Data

The dollar held a three-day gain against the euro before U.S. data forecast to show jobless claims decreased and manufacturing expanded.

The greenback was still poised for monthly declines against most major peers as concern the partial government shutdown will affect the economy underpins the Federal Reserve’s decision to keep buying $85 billion of bonds a month. The yen held near a two-week low ahead of a Bank of Japan meeting today at which policy makers are expected to maintain record stimulus. New Zealand’s dollar fell after the central bank signaled that currency strength may provide scope to delay interest-rate increases.

“The people who were expecting a more dovish statement from the Fed are unwinding their positions,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “The dollar was bought back, but whether it can sustain those gains will depend on the economic data.”

The dollar was little changed at $1.3733 per euro as of 11:39 a.m. in Tokyo from yesterday, after having strengthened 0.5 percent in the previous three sessions. It was at 98.43 yen from 98.51 yesterday, when it reached 98.68, the highest since Oct. 17. For the month, the greenback was set for a 1.5 percent drop against the 17-nation euro and a 0.2 percent advance versus the yen.

Japan’s currency added 0.1 percent to 135.17 per euro from yesterday. New Zealand’s kiwi dollar fell 0.2 percent to 82.53 U.S. cents from yesterday, when it touched 81.93, the weakest level since Sept. 17.

The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major counterparts, was at 1,006.93 from 1,007.37 yesterday, the highest close since Oct. 16.

Recovery Signs

First-time applications for jobless benefits probably decreased to 338,000 in the week ended Oct. 26 from 350,000 the previous week, according to the median estimate of economists surveyed by Bloomberg News ahead of the data today.

Economists in a separate Bloomberg poll estimate the Institute for Supply Management will say tomorrow its manufacturing index was at 55 in October from 56.2 last month, which was the highest since April 2011. Readings above 50 indicate growth.

Weaker Inflation

Weaker-than-forecast consumer-price data yesterday gave the central bank more flexibility to maintain stimulus. The cost of living rose 1.7 percent in the 12 months through September, excluding food and energy, the Labor Department reported. A Bloomberg survey estimated a 1.8 percent increase. The Fed’s inflation target is 2 percent.

The Federal Open Market Committee yesterday kept unchanged its monthly purchases of $45 billion of Treasuries and $40 billion of mortgage-backed securities, saying in a statement it saw “improvement in economic activity and labor market conditions.”

It repeated it will “await more evidence that progress will be sustained before adjusting the pace of its purchases.”

Economists forecast no change to the Fed’s bond buying yesterday. The FOMC won’t reduce the pace of purchases until its March 18-19 meeting, according to an Oct. 17-18 Bloomberg survey.

The 10-year Treasury yield was little changed at 2.53 percent from yesterday, when it rose three basis points. The yield on equivalent Japanese government bonds slid to 0.585 percent, the lowest since May 9.

“The market got ahead of itself expecting a dovish Fed and now it’s taking a breather after the decision,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo.

BOJ Stimulus

The BOJ buys more than 7 trillion yen ($71 billion) of Japanese government bonds every month in its bid to stoke annual inflation of 2 percent. The central bank will also release updated forecasts on Japan’s growth and inflation.

Governor Haruhiko Kuroda and his policy board forecast in July that consumer prices excluding fresh food will climb 1.3 percent in the year starting April 2014, once the effects of a planned sales-tax increase are stripped out. The 5 percent consumption levy is scheduled to rise to 8 percent in April and to 10 percent in 2015.

“The BOJ is likely to take the stance that they are preparing the economy for the planned sales-tax increase,” said Gaitame’s Gervaise. “That is largely priced in by the market, so unless there is a clear signal that the BOJ will be ahead of the curve in easing policy, the yen reaction may be quite limited.”

Biggest Decline

The yen has fallen 2.9 percent in the three past months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the Canadian dollar’s 4.3 percent drop. The euro has gained 1.3 percent in the same period, while the New Zealand dollar has risen 1.4 percent.

In New Zealand, the central bank left the official cash rate unchanged at a record-low 2.5 percent today, in line with economists’ estimates. Sustained strength in the kiwi holding inflation in check gives the bank “greater flexibility as to the timing and magnitude of future increases” in interest rates, Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement released in Wellington today.

“The statement, particularly the exchange-rate rhetoric, strongly hints at the possibility of a delay in RBNZ tightening expectations,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This may weigh on the New Zealand dollar.”

-- With assistance from Yuko Takeo in Tokyo, Candice Zachariahs in Sydney and Mika Otsuka in New York. Editors: Jonathan Annells, Naoto Hosoda

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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