Dollar Gains as Markets Discount Weak Economic Data; Real Rises

The dollar rose to a one-week high as traders looked past weaker-than-forecast U.S. economic reports that may have been distorted by winter storms.

The U.S. currency gained on speculation the Federal Reserve will continue to reduce monetary stimulus even as a gauge of business in the Philadelphia region unexpectedly fell this month and weekly jobless claims were higher than estimated. The euro fell as measures of European services and manufacturing both dropped, while the yen rose versus most peers on haven demand after a weaker-than-projected report on Chinese manufacturing added to concern the world’s second-biggest economy is slowing. Brazil’s real increased the most among major currencies as the government cut spending to meet a budget target.

“Despite the weak data, the foreign-exchange market is not in a panic,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “By weak data, I’m not just talking about the U.S. Philly Fed, but Chinese data, euro-zone data, both disappointing.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, advanced as much as 0.2 percent to 1,021.98, the highest level since Feb. 13, before closing at 1,020.59 at 5 p.m. in New York.

The yen was little changed at 102.28 per dollar after rising 0.1 percent yesterday. Japan’s currency climbed 0.1 percent to 140.31 per euro after depreciating to 141.03 on Feb. 18, the weakest level since Jan. 29. The euro dropped 0.1 percent to $1.3719.

Real Rises

Brazil’s currency strengthened on easing concern that fiscal deterioration will lead to a lowered credit rating. The real appreciated 1 percent to 2.3704 per U.S. dollar.

The yuan tumbled the most in two years in offshore trading as China’s central bank cut its fixing for the currency to this year’s low and data indicated manufacturing is shrinking faster than economists forecast.

The currency sank 0.35 percent, the most since January 2012, to 6.0718 per dollar.

HSBC Holdings Plc and Markit Economics said their index of Chinese manufacturing fell to 48.3 from January’s final figure of 49.5. A number below 50 indicates contraction. Slowing output increases pressure on policy makers to support economic expansion that’s forecast to slide to a 24-year low of 7.4 percent in 2014.

China Outlook

“There does seems to be a risk dynamic in China where it is impacting the safe-haven and risk currencies,” said Simon Smith, chief economist at FxPro Group Ltd. in London. “We’re moving back toward being a bit more sensitive to the China data. Naturally the euro is not happy with these PMI numbers.”

Currencies of nations that benefit from trade with China also declined. South Korea’s won slumped 0.6 percent to close at 1,072.30 per dollar.

The yen has rallied 3.6 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 0.3 percent, while the euro added 0.1 percent.

“The yen still has a safe-haven appeal,” said Sean Callow, a currency strategist at Westpac Banking Corp. in Sydney. “The market is particularly sensitive to the flash Chinese PMI, particularly because it’s timely. I would be very reluctant to draw a sweeping conclusion but I accept that the market likes to trade off it, and the market is in the mood to be bearish.”

Economic Numbers

The Philadelphia Fed Index fell to -6.3, compared with an estimate of 8, according to a Bloomberg survey. Fewer Americans filed applications for unemployment benefits last week, a Labor Department report showed today, while the 336,000 figure exceeded the median estimate of 335,000 in a Bloomberg survey of economists.

Minutes of the Fed’s January policy meeting released yesterday showed several policy makers said in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to trim asset purchases by $10 billion at each meeting.

“Even if we get some weaker U.S. economic data, the Fed will not easily stop tapering and that’s being priced in by the market,” said Noriaki Murao, managing director of the marketing group at the Bank of Tokyo-Mitsubishi UFJ Ltd. in New York “The dollar is supported.”

The euro weakened against most of its 16 major counterparts after Markit Economics said its composite index of services and manufacturing in the region dropped to 52.7 in February from 52.9 the previous month. Economists surveyed by Bloomberg forecast an increase to 53.1.

While the euro-area economy is forecast to post full-year growth in 2014 for the first time in three years, the recovery remains at risk because of almost-record unemployment and subdued price pressures.

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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