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Dollar Drops as Weather-Slowed Economic Data Misses Forecasts

Photographer: Andrew Harrer/Bloomberg

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, declined 0.6 percent this week to 1,017.47 in New York. Close

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major... Read More

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Photographer: Andrew Harrer/Bloomberg

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, declined 0.6 percent this week to 1,017.47 in New York.

The dollar declined for a second week, touching its lowest level in almost a month, as weaker-than-expected U.S. economic data added to evidence severe winter weather weighed on the economy.

The British pound climbed to a more than four-year high versus the greenback amid better than anticipated data and as the Bank of England acknowledged improving economic conditions. The euro fell versus most major peers amid speculation that the European Central Bank will consider negative deposit rates. The Federal Reserve will release next week minutes of its last meeting, after which Chairman Janet Yellen said the recovery in the U.S. labor market is “far from complete.”

“The data from this week supports a weaker dollar,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said yesterday in a phone interview. “Even though it’s very much weather-polluted, it still suggests there’s no hurry for the underlying growth trend to be accelerating.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, declined 0.6 percent this week to 1,017.47 in New York. It touched 1,016.98, the lowest since Dec. 18.

The dollar fell 0.4 percent to $1.3693 per euro and touched $1.3715 yesterday, its weakest level since Jan. 27. The greenback dropped 0.5 percent to 101.80 yen. Japan’s currency rose 0.1 percent versus the euro to 139.39.

Futures Positions

Hedge funds and other large speculators increased their bets that the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the yen compared with those on a gain, known as net shorts, was 78,786 on Feb. 11, compared with net shorts of 76,829 a week earlier.

The MSCI All-Country World Index (SPX) gained 2.4 percent over the five-day period, its best week since Oct. 18. The Standard & Poor’s 500 Index rose 2.3 percent. Benchmark U.S. 10-year Treasury notes fell, pushing yields up six basis points, or 0.06 percentage point, to 2.74 percent.

The pound was the week’s biggest gainer, rising 2.1 percent versus the dollar, followed by the South African rand’s 1.9 percent advance. Brazil’s real was the worst performer out of the dollar’s 16 most-traded peers, falling 0.4 percent. Russia’s ruble led declines among emerging-market currencies, dropping 1.2 percent.

A custom Bloomberg index with equal weightings of the dollar’s 20 most-traded emerging-market peers increased for a second week, rising 0.8 percent. The gauge slipped 1.5 percent in this year.

U.S. Data

The dollar slid to its weakest level of the year as a winter storm roared across the eastern U.S., killing at least 25 people and scrubbing 14,000 flights this week. More snow was expected in the Northeast this weekend as economists debated the effect of the storms on economic growth.

Inclement weather was cited as a reason retail sales in the U.S. fell 0.4 percent in January after a revised 0.1 percent drop the prior month, according to a Feb. 13 Commerce Department report. The median forecast of 86 economists surveyed by Bloomberg called for no change.

On the same day, a Labor Department report showed jobless claims increased by 8,000 to 339,000 in the week ended Feb. 8 from 331,000 in the prior period. The median forecast of 52 economists surveyed by Bloomberg called for a decrease to 330,000.

Dents ‘Confidence’

“The data is weaker than expected and, frankly, I think the dollar should’ve moved more than it did,” Greg Anderson, head of global foreign-exchange strategy at Bank of Montreal, said in a Feb. 13 phone interview. “It’s a substantial disappointment, and it dents economic confidence.”

Factory production in the U.S. unexpectedly declined in January by the most since May 2009, according to a report released yesterday, adding to evidence severe winter weather weighed on the economy.

Yellen delivered her first public remarks as Fed chief as policy makers pursue plans to gradually scale back the unprecedented bond-purchase program she helped put in place. She repeated the Fed’s outlook for further reductions in “measured steps” and that asset purchases aren’t on a “pre-set course.”

The Federal Open Market Committee said in January it will cut monthly bond purchases by $10 billion to $65 billion, citing labor-market indicators that “were mixed but on balance showed further improvement.” It bought $85 billion a month last year.

‘Policy Error’

Money-market futures are pricing that the U.S. overnight funding rate will move to 0.58 percent by December 2015 and to 1.59 percent by December 2016. That compares to the median estimates of 0.75 percent and 1.75 percent made by Fed officials in December, when the most recent Summary of Economic Projections was released.

“The market is already accepting that, even when the Fed does move rates, it will be cautious in fear of making a policy error,” Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments Ltd., which oversees over $270 billion, said in a Feb. 11 telephone interview.

The British pound gained the most against the dollar among 16 major peers as the Bank of England said on Feb. 12 the U.K.’s economic recovery is gaining momentum. A government report showed yesterday that construction output increased in December, adding to signs of economic strength.

Sterling climbed 2 percent to $1.6743 this week after touching $1.6756, its strongest level since November 2009. The pound increased 1.6 percent to 81.77 pence per euro, its best five-day performance since April.

The U.K. is the “leader of the tightening pack” and the Bank of England is likely to validate higher short rates soon, Bill Gross, the co-founder of Pacific Investment Management Co., said via Twitter on Feb. 12.

Europe’s shared currency decreased 1.x percent versus the pound as Reuters reported on Feb. 12 that ECB Executive Board member Benoit Coeure said the central bank is “very seriously” considering negative deposit rates.

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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