The dollar was little changed against most major peers as investors awaited U.S. employment reports that may clarify the case for Federal Reserve policy makers to reduce stimulus measures.
The euro was set for its biggest two-week decline in more than a year versus the greenback after Standard & Poor’s lowered France’s credit rating, adding to pressure on the common currency after an interest-rate cut yesterday. Sweden’s krona fell to the weakest in more than four months against the euro after a report showed industrial production stagnated. A dollar gauge rose to an eight-week high yesterday as data showed the economy expanded more than forecast.
“We’re more likely to get positive rather than negative surprises out of the U.S. data given the lowered expectations,” said Ian Stannard, the head of European foreign-exchange strategy at Morgan Stanley in London. “If we saw such a positive reading that would translate through into dollar strength rather than a more risk positive environment.”
The Bloomberg U.S. Dollar Index, which monitors the currency against 10 major counterparts, was at 1,016.98 as of 8:06 a.m. New York time after touching 1,022.30 yesterday, the highest level since Sept. 13.
The dollar was little changed at $1.3413 per euro after appreciating to $1.3296 yesterday, the strongest level since Sept. 16. It rose 0.5 percent this week. The greenback was little changed at 98.11 yen , having declined 0.6 percent this week. The common currency has dropped 2.8 percent over the past two weeks, the biggest such slide since July 2012. The euro traded at 131.66 yen.
U.S. nonfarm payrolls rose by 120,000 last month after a 148,000 gain in September, a Bloomberg News survey of economists indicated before today’s Labor Department data.
Gross domestic product in the U.S. grew at a 2.8 percent annualized rate in the third quarter, up from 2.5 percent in the previous three months, according to a Commerce Department report yesterday. Economists forecast a 2 percent expansion.
The strong GDP report may produce an “upward surprise” in the nonfarm payrolls number, though unemployment may rise, according to Richard Grace, the Sydney-based chief currency strategist at Commonwealth Bank of Australia. (CBA)
“We’ll see a mixed message in the labor market,” Grace said. “The volatility in the unemployment rate is less likely to last and can be somewhat explained by the partial government shutdown. Hence we see upside risk to the U.S. dollar.”
Europe’s single currency has gained 5.4 percent this year, the best performer among 10 developed-market peers tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 10 percent, the biggest decliner, while the dollar has gained 3.4 percent.
S&P said France’s slower growth will constrain the government’s ability to improve public finances and played down the impact of President Francois Hollande’s reforms. The nation’s long-term foreign and local-currency grade was lowered one step to AA from AA+, S&P said in a statement. France lost the top rating at S&P in January 2012. The outlook on the grade, now the third highest, is stable.
“For France, the main issue is a lack of economic growth and a lack of reform,” said David Forrester, a senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd. in Sydney. “The risks to the euro remain to the downside.”
The ECB yesterday reduced its main refinancing rate to 0.25 percent. (EURR002W) President Mario Draghi pushed for the cut over opposition from Bundesbank President Jens Weidmann and at least two other Governing Council members who wanted to wait until next month to decide, according to euro-area central bank officials who asked not to be identified.
A report published on Oct. 31 showed the region’s annual inflation rate unexpectedly fell to 0.7 percent last month, the least since November 2009.
“With the ECB reaffirming its easing bias, the euro will remain heavy,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “People will be watching euro zone inflation very carefully.”
There is an almost 50 percent probability the euro, which has risen more than 5 percent against the greenback since reaching a 2013 low in April, will give back its increase by mid-2014, according to data compiled by Bloomberg. The odds are the highest in seven weeks and up from 37 percent prior to the ECB lowering its key rate.
Sweden’s krona dropped against all 16 of its major peers tracked by Bloomberg after a report showed industrial production was unchanged in September from a month earlier. Economists surveyed by Bloomberg had forecast a 1.3 percent increase.
The weak data “will fuel speculation that the Riksbank will have to cut rates,” Arne Lohmann Rasmussen, head of foreign-exchange research at Danske Bank in Copenhagen, wrote in an e-mailed report. “Needless to say that this is negative for the Swedish krona.”
Sweden’s krona weakened for a second day versus the dollar, slipping 0.7 percent to 6.5793. It fell for the first time in five days against the euro, also depreciating 0.7 percent, to 8.8262. It earlier touched 8.8469, the weakest level since June 25.
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