Dollar Tumbles Versus Peers Before Bernanke Speech; Kiwi Climbs

Euro Holds Decline Versus Dollar Before Manufacturing Report
One euro coins and euro notes are arranged for a photograph in London, U.K. Photographer: Chris Ratcliffe/Bloomberg

The dollar fell versus 15 of its 16 most-traded peers as bets that Federal Reserve Chairman Ben S. Bernanke may signal further steps to spur the economy, including debt buys under quantitative easing, damped refuge demand.

The New Zealand and Australian dollars led gains versus the greenback after data showed manufacturing from China to Europe exceeded economists’ forecasts and before Bernanke’s speech Aug. 26 in Jackson Hole, Wyoming. The euro rose the most against the dollar in a week as stocks rallied. The franc fell versus the dollar and the yen slid against the euro as risk appetite rose.

“It felt like a little bit of a risk-on day right from the get-go, and the dollar has been down against everything,” said Alan Ruskin, global head of Group-of-10 foreign-exchange strategy at Deutsche Bank AG in New York. “The rising risk of quantitative easing measures from the Fed has certainly been something that is weighing on the dollar.”

The U.S. currency depreciated 0.6 percent to $1.4442 per euro at 5 p.m. in New York, after earlier weakening as much as 1 percent in the biggest intraday decline since Aug. 15. It fell 0.2 percent to 76.66 yen. Europe’s 17-nation currency was up 0.4 percent to 110.70 yen and touched 111.10 yen, the highest since Aug. 10. The euro gained 0.8 percent to 1.1443 francs, and the greenback rose 0.3 percent to 79.23 Swiss centimes.

New Zealand’s currency, nicknamed the kiwi, advanced 1.4 percent to 83.60 U.S. cents, and Australia’s dollar gained 1.1 percent to $1.0526.

The Standard & Poor’s 500 Index climbed 3.4 percent, and the MSCI World Index of equities added 2.3 percent.

Biggest Loser

The dollar has lost the most this year against a basket of its nine developed-nation peers, dropping 6.7 percent, Bloomberg Correlation Weighted Currency Indexes show. The franc has gained 12 percent in the biggest increase, and Japan’s currency has fallen 0.6 percent.

The dollar may weaken to about $1.47 per euro before Bernanke’s speech at the Kansas City Fed’s annual economic conference in Jackson Hole, said Geoff Kendrick, head of European currency strategy at Nomura International Plc in London. He predicted the central bank will make no additional debt purchases under quantitative easing.

At last year’s conference, Bernanke foreshadowed a second round of quantitative easing. The Fed bought $600 billion of Treasuries from November through June.

The Fed chief told Congress last month the central bank’s options to bolster the economy include increasing the average maturity of its bond portfolio and cutting the interest rate on excess reserves, as well as buying additional debt and keeping rates low.

‘Whole Market’ Waiting

“The whole market is just waiting for the Jackson Hole meeting,” said Fabian Eliasson, head of U.S. currency sales at Mizuho Financial Group Inc. in New York. “We might not have seen the last of the Federal Reserve putting more liquidity in the market.”

Demand for higher-yielding assets rose as a preliminary gauge of Chinese manufacturing in August slipped to 49.8, according to the Purchasing Managers’ Index reported by HSBC Holdings Plc and Markit Economics today. The figure was better than the “rumored” number of 45 and may provide some relief to the market, Bank of America Merrill Lynch’s Ting Lu in Hong Kong said. A number below 50 shows contraction.

Germany’s manufacturing purchasing managers’ index was 52 in August, exceeding the 50.6 median forecast in a Bloomberg survey, Markit Economics said separately today. A composite index of euro-area purchasing managers in services and manufacturing also exceeded estimates.

‘Being Buoyed’

Investment flows into the Norwegian krone, Sweden’s krona and the euro have increased this week, according to Bank of New York Mellon Corp.’s iFlow data, while investors have continued to sell dollars and francs.

“Investor sentiment is being buoyed by the latest data showing better-than-expected readings on manufacturing activity in China and the euro zone,” Samarjit Shankar, a managing director for the foreign-exchange group in Boston at BNYMellon, the world’s largest custodial bank, with more than $26 trillion in assets under administration, wrote in a note to clients.

The Norwegian currency gained 0.5 percent today to 5.4266 versus the dollar, and Sweden’s krona rose 0.9 percent to 6.3152 to the greenback.

Earlier gains by the euro were tempered after an industry report showed German investor confidence slumped in August. The ZEW Center for European Economic Research said its index of investor and analyst expectations fell to minus 37.6 from minus 15.1 in July. A Bloomberg survey forecast a decline to minus 26.

The euro has traded in an 8-cent range against the dollar since May as it benefited from political wrangling in the U.S. and Europe struggled to tame its sovereign-debt crisis.

More on Horizon

“The $1.45 to $1.4520 area will be an area of resistance which the euro will need to break if it’s going to try for anything better than that,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “There so much more on the horizon with regard to European debt, and it’s going to take a long time to manifest itself.” Resistance is an area on a chart where sell orders may be clustered.

The yen also fell after Finance Minister Yoshihiko Noda said he’s examining how much speculative trading is influencing the currency, which surged to a post-World War II record of 75.95 per dollar on Aug. 19. Measures to address the yen may be needed in the government’s budget, Noda added.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE