Dollar Declines as Reports Show Economy Slowing

The dollar extended a weekly decline as measures of industrial production and regional manufacturing dropped, adding to bets the Federal Reserve won’t stop its monthly asset purchases anytime soon.

The yen slid for a third week versus the dollar as gains in stocks and the outlook for further global economic stimulus trimmed demand for haven assets. The greenback headed for a weekly drop versus the euro after Fed Chairman-nominee Janet Yellen said told Congress yesterday that quantitative easing was still needed to spur growth. Australia’s and New Zealand’s dollars strengthened.

“As risk appetite increases, the dollar and the yen have sold off,” Michael Woolfolk, a global-markets strategist at Bank of New York Mellon in New York, said in a phone interview. “We believe that Yellen’s Senate confirmation hearing slammed the door shut on a December taper.”

The Bloomberg U.S. Dollar Index, which monitors the greenback against 10 major counterparts, fell to 0.2 percent to 1,016.88 at 5 p.m. in New York after dropping to 1,015.83 yesterday, the lowest since Nov. 7. It dropped 0.5 percent this week.

The yen fell 0.2 percent to 100.19 per dollar after depreciating to 100.44, the weakest level since Sept. 11. It has lost 1.2 percent this week. Japan’s currency slid 0.5 percent to 135.21 per euro. The dollar fell 0.3 percent to $1.3496 per euro, for a decline of 1 percent this week.

Winners, Losers

The Mexican peso rose 1.8 percent and South Africa’s rand climbed 1.7 percent this week, the most among the 16 most-traded currencies versus the dollar. The yen dropped 1.1 percent for the biggest decline, followed by the Swedish krona’s 0.6 percent slide.

The Australian and New Zealand dollars rose today as optimism there will be further monetary stimulus from major central banks buoyed demand for higher-yielding assets.

“The central bank outlook will remain supportive in the near term,” said David Forrester, a senior vice president for Group of 10 foreign-exchange strategy at Macquarie Bank Ltd. in Sydney. “With the weaker yen, the Aussie and kiwi tend to outperform.”

The Australian dollar rose 0.7 percent to 93.86 yen, and gained 0.6 percent to 93.68 U.S. cents. New Zealand’s dollar rose 1 percent to 83.54 yen and strengthened 0.8 percent to 83.38 U.S. cents.

Won, Stocks

The South Korean won jumped for a second day along with stocks, boosting demand for emerging-market currencies.

The won appreciated 0.4 percent to close at 1,063.53 per dollar in Seoul. The MSCI Asia Pacific Index (SPX) of regional stocks advanced for a second day, climbing 1.4 percent. The Standard & Poor’s 500 Index of U.S. stocks gained 0.4 percent.

“Monetary conditions are going to be easy for a very long period, and that’s particularly positive for currencies geared to growth and commodity cycle,” Jonathan Lewis, chief investment officer at Samson Capital Advisors LLC and manager of the Samson Strong Nations Currency Fund, said in a telephone interview from New York.

The dollar weakened as total industrial production in the U.S. fell 0.1 percent in October as output at mines and utilities declined. The median forecast in a Bloomberg survey called for a 0.2 percent rise.

The New York Fed Empire Report fell to minus 2.2 from 1.5 the previous month. The media forecast in a Bloomberg survey was for a gain to 5. Negative readings signal contraction in New York, northern New Jersey and southern Connecticut.

Yellen’s ‘Message’

Yellen said yesterday the central bank’s key interest rate, at a record zero to 0.25 percent, would remain low even after policy makers start to reduce monetary easing. The Fed has kept its benchmark for borrowing costs near zero since December 2008.

The Federal Open Market Committee that Yellen is poised to lead is considering whether to begin slowing its $85 billion monthly bond-purchase program. Officials will decide to pare the purchases to $70 billion a month at their March 18-19 meeting, according to the median of 32 economist estimates in a Bloomberg News survey on Nov. 8.

“The currency market appears to be saying, ‘We get the message from Yellen, the Fed’s not going to taper,’” Lewis of Samson Capital said. “The Japanese yen is off today, and that’s a currency we associate with a safe-haven move.”

The yen weakened beyond 100 per dollar yesterday for the first time since September as Japan’s gross domestic product growth slowed to an annualized 1.9 percent in the July-September period from 3.8 percent in the second quarter.

‘Risk-On Environment’

BOJ policy makers meet Nov. 20-21, with almost three-quarters of economists surveyed by Bloomberg expecting the central bank will add to stimulus in the first half of next year.

Futures traders increased their bets that the yen will decline against the U.S. dollar to the most since May, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 95,107 on Nov. 12, compared with net shorts of 73,792 a week earlier.

“It’s generally a more risk-on environment,” said Kiran Kowshik, a foreign-exchange strategist at BNP Paribas SA in London. “That’s why you’re seeing the yen weakening. Yellen’s testimony has sparked a risk-on move.”

The yen slumped 1.6 percent in the past week, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The kiwi gained 0.8 percent and the euro climbed 0.7 percent to pace gainers. The dollar dropped 0.3 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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