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Dollar Drops as Factory Production Slips on Weather; Pound Gains

The dollar declined to its weakest level in almost two months after factory production in the U.S. unexpectedly declined in January by the most since May 2009, adding to evidence severe winter weather weighed on the economy.

The pound reached a more than four-year high versus the greenback on better-than-forecast construction output. The euro rose for a second day against the dollar as data showed the region’s economy grew more than analysts forecast. The Australian dollar advanced after consumer prices increased in China, the nation’s biggest trading partner.

Related: Factory Production in U.S. Fell in January by Most Since 2009

“With this week’s U.S. data generally subdued and euro-zone data modestly firm in tone, the greenback is ending the week on a defensive note,” Nick Bennenbroek, the head of currency strategy at Wells Fargo Securities LLC in New York, wrote in a client note. “We expect the U.S. dollar’s softer bias could continue into next week.”

The Bloomberg Dollar Spot Index, which monitors the currency against 10 major counterparts, dropped 0.3 percent to 1,017.47 at 5 p.m. in New York after declining to 1,016.98, the lowest since Dec. 18. It slid 0.6 percent this week.

The greenback dropped 0.4 percent to 101.80 yen and slipped 0.5 percent on the week. The U.S. currency dipped 0.1 percent to $1.3693 per euro after declining to $1.3715, the weakest level since Jan. 27. The yen gained 0.3 percent to 139.39 per euro.

The JPMorgan G7 Volatility Index dropped to 7.79 percent after touching an almost three-week low of 7.76 on Feb. 11.

Pound, Naira

The British pound strengthened for a fourth day against the dollar after a government report showed construction output increased in December, adding to signs the economic recovery is gathering pace. Sterling appreciated 0.5 percent to $1.6747 after rising to $1.6756, the highest since November 2009.

Nigeria’s naira rebounded from a record low after the central bank of Africa’s second-largest economy said it intervened in the market and has enough reserves to keep defending the currency. The naira climbed 1.8 percent to 162.45 per dollar.

The South African rand rose, adding to its biggest weekly gain in four months, as interest rates among the highest in developing nations attracted foreign capital. The currency appreciated 1 percent to 10.8609 per dollar after increasing to 10.8403, the strongest since Jan. 22. It’s added 1.8 percent this week, the most since the five days ended Sept. 6.

Aussie Gains

The Australian dollar advanced for the first time in three days against the U.S. currency after China’s National Bureau of Statistics said consumer prices increased 2.5 percent in January from a year earlier. That compares with a 2.4 percent increase predicted by economists in a Bloomberg survey.

The Aussie gained 0.6 percent to 90.34 U.S. cents, extending a third week of gains to 0.8 percent.

A winter storm in the U.S. grounded flights and knocked out power to hundreds of thousands in the past three days. Citigroup Inc.’s U.S. Economic Surprise Index, which shows if data beat or fell short of economists’ forecasts, dropped yesterday to a 10-week low.

“Our best guess is that the severe weather has played a key role in the apparent deterioration in the incoming economic data for December and January,” Paul Ashworth, chief U.S. economist at Capital Economics Ltd. in Toronto, wrote in a note to clients. “After the weather returns to normal, whenever that might be, we would expect to see a marked improvement.”

‘Pushed Around’

The 0.8 percent decrease at manufacturers followed a revised 0.3 percent gain the prior month that was weaker than initially reported, figures from the Federal Reserve showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.1 percent advance. Total industrial production dropped 0.3 percent even as utility output climbed the most in almost a year.

A preliminary reading of the Thomson Reuters/University of Michigan sentiment index remained at 81.2 in February for a second month. The median estimate in a Bloomberg survey of 74 economists called for a decline to 80.2. Forecasts ranged from 76.5 to 86.

“This weaker data is bringing down growth expectations for the first quarter,” Robert Sinche, a global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a phone interview. “Investors came into the year with a pretty positive view on the dollar, and there’s been a squeeze going on.”

Yen, Euro

The yen gained as Japan’s Topix index slid 1.3 percent and the Nikkei 225 Stock Average dropped 1.5 percent.

The euro extended a second weekly gain versus the dollar after the European statistics office said the region’s economy grew 0.3 percent in the three months through December. The median forecast of economists in a Bloomberg News survey was for a 0.2 percent increase.

“Just as we might be celebrating the fact that we’ve had a modestly better recovery than we thought for the euro zone, the market is becoming disillusioned with its expectations for U.S. growth,” said Jane Foley, a senior currency strategist at Rabobank International in London. “The dollar has had a very soggy month.”

The dollar slumped 0.9 percent this week, the worst performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro declined 0.4 percent, while the yen fell 0.3 percent.

To contact the reporter on this story: 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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