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Dollar at Almost 7-Week High as Service Industries Top Forecasts

The dollar rose to an almost seven-week high after a gauge of service industries climbed more than forecast in October, adding to the case for the Federal Reserve to taper monthly bond purchases.

The euro dropped against the yen after European Central Bank Executive Board member Joerg Asmussen said the economic recovery is “still very green” before the bank’s policy meeting this week. Japan’s currency appreciated versus most of its 16 most-traded counterparts as the Bank of Japan’s governor said efforts to dispel the country’s deflation are succeeding. Brazil’s real fell against all major peers.

The dollar rally “continued with fairly decent readings on the Institute for Supply Management” non-manufacturing index, Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc. (8411), said in a phone interview. “Overall, the market turned a little bit dollar positive.”

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major currencies, rose 0.3 percent to 1,015.99 at 5 p.m. New York time after touching 1,016.64. The index reached 1,017 yesterday, the highest since Sept. 18.

The yen rose 0.4 percent to 132.72 per euro after appreciating to 132.37, the strongest level since Oct. 10. Japan’s currency gained 0.1 percent to 98.50 per dollar. The euro dropped 0.3 percent to $1.3474 after sliding to $1.3442 yesterday, the weakest since Sept. 18.

Kiwi Rises

New Zealand’s dollar climbed against its U.S. counterpart after the nation’s employment rose 1.2 percent from the prior quarter, according to Statistics New Zealand. The currency climbed 1 percent to 83.65 U.S. cents, the biggest increase since Sept. 18 on a closing basis.

The real declined to the weakest versus the greenback since Sept. 11 as Brazil central-bank President Alexandre Tombini said policy makers must be “especially vigilant” on inflation. The real depreciated 1.9 percent to 2.2890 per U.S. dollar after touching 2.2939, and has dropped 2.2 percent this month, the most among major currencies.

South Africa’s rand weakened against the dollar on concern labor disputes at platinum mines will weigh on the nation’s current-account deficit.

The rand dropped 1.1 percent to 10.2444 per dollar, bringing its decline this month to 1.8 percent.

The pound advanced for a fifth day against the euro after U.K. services output accelerated to the fastest in 16 years. Sterling gained 0.8 percent to 83.97 pence per euro. The U.K. currency advanced 0.5 percent to $1.6046.

Yen Support

Bank of Japan Governor Haruhiko Kuroda told reporters in Osaka today that inflation expectations are gradually rising and that it’s too early to debate an exit strategy.

“The optimistic outlook may signal to markets that no additional easing is likely at this time, and that is supportive of the yen,” said Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York.

The euro slid 1.4 percent in the past week, the worst performer after Sweden’s krona of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as a report on Oct. 31 showed the region’s annual inflation rate unexpectedly fell last month. The dollar added 0.7 percent and the yen rose 0.7 percent.

“The pressure is piling on the hawks to cut,” Sebastien Galy, a senior foreign-exchange strategist at Societe Generale SA in New York, said of the ECB, which will announce its decision Nov. 7.

ECB Forecasts

Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG have predicted in the past week that the ECB will cut its benchmark main refinancing rate, now 0.5 percent, on Nov. 7. The other 67 of 70 economists surveyed by Bloomberg forecast policy makers will leave borrowing costs unchanged.

ECB President Mario Draghi, speaking today in Frankfurt, said that while the “overall economic situation has slightly improved since the middle of last year, interest rates on loans continue to vary widely.” He said a euro area banking union would “improve the situation.”

The European Union cut its forecast for the region’s growth next year to 1.1 percent, less than the 1.2 percent estimated in May. Unemployment (UMRTEMU), now at the highest rate since the euro was introduced, will be at 12.2 percent in 2014, versus the 12.1 percent predicted six months ago, the commission said.

The ISM’s non-manufacturing index increased to 55.4 from the prior month’s 54.4, the Tempe, Arizona-based group said today. A gauge above 50 shows expansion. The median estimate in a Bloomberg survey of economists was 54.

‘Underlying Strength’

“The data has increased some optimism that there may not be a downside surprise on payrolls on Friday, which is why we’re seeing a stronger dollar today,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview.

Payroll gains will shrink to 120,000 in October, according to the median forecast of 88 economists in a Bloomberg survey before the Nov. 8 release, from a 148,000 gain the previous month. The jobless rate is predicted to rise to 7.3 percent, according to another survey.

Fed policy makers said Oct. 30 that the economy showed signs of “underlying strength” even as they maintained their $85 billion of monthly asset purchases to support the growth and cap borrowing costs. A Bloomberg survey of analysts taken on Oct. 17-18 forecast a March tapering of the purchases. The Federal Open Market Committee next meets Dec. 17-18.

Trading in over-the-counter foreign-exchange options totaled $42 billion, from $34 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 euro-dollar exchange rate amounted to $9.7 billion, the largest share of trades at 23 percent. Options on the dollar-yen rate totaled $7.6 billion, or 18 percent.

Euro-dollar options trading was 57 percent more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 7 percent less than average.

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