The Dollar Index fell for the first time in three weeks as stronger-than-forecast U.S. economic data spurred bets growth in the world’s biggest economy is building momentum, prompting investors to seek higher-yielding assets.
The U.S. currency rose versus all of its 16 most-traded counterparts as European Central Bank President Mario Draghi said the ECB is ready to start buying euro-bloc nations’ debt to stem the region’s debt crisis. The Federal Reserve will issue its Beige Book regional business survey next week in preparation for its policy meeting this month.
“European bond buying has given the market some confidence to actually apply some risk,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a phone interview. “The market is also trying to buy into North American growth. If the U.S. keeps the ship upright, the market will find more conviction and want to own more risk.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners including the euro and the yen, fell 0.8 percent to 79.336 this week in New York. It touched 79.103 yesterday, the lowest level since Sept. 21.
The dollar dropped 1.4 percent to $1.3045 per euro, after gaining 0.9 percent in the five days ended Sept. 28 and rising 1.2 percent the previous week. The 17-nation currency gained 2.4 percent to 102.57 yen. The Japanese currency depreciated 0.9 percent to 78.67 to the dollar.
Futures traders raised their bets the euro will fall against the dollar, Commodity Futures Trading Commission data showed. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 50,265 on Oct. 2. That compared with 50,238 a week earlier. Net shorts reached a record 214,418 on June 8.
The dollar slid versus most peers Oct. 4 after minutes of the Fed’s September meeting showed policy makers saw manageable risks in a third round of U.S. bond buying they decided to start under the quantitative-easing stimulus strategy. The central bank is purchasing $40 billion of mortgage bonds a month until the economic recovery is well-established, prompting concern financial markets will be disrupted and inflation will rise.
“Most participants thought these risks could be managed since the committee could make adjustments to its purchases, as needed, in response to economic developments or to changes in its assessment of their efficacy and costs,” the minutes said.
The U.S. jobless rate unexpectedly dropped to 7.8 percent last month, its lowest level since January 2009, Labor Department data showed yesterday. Payrolls increased by 114,000 workers, almost matching a Bloomberg News survey estimate of 115,000, the data showed.
“That the unemployment rate is moving lower will have an impact on the length and size of this new QE program from the Fed,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said yesterday in a telephone interview. “The unemployment rate moving lower, faster, is going to reduce expectations that the Fed is going to need to print more dollars.”
The labor-market data followed Institute for Supply Management indexes this week that showed U.S. manufacturing unexpectedly expanded last month, and U.S. services industries grew more than forecast.
The Fed’s next meeting will be Oct. 23-24. The central bank releases its Beige Book, designed to provide policy makers anecdotal evidence on the economy before the session, Oct. 10.
The euro has gained 1.9 percent over the past month in the best performance among 10 developed-nation counterparts tracked by Bloomberg Correlation-Weighted Indexes. The dollar slid 1.9 percent, and the yen dropped 2.3 percent.
The shared currency had its biggest single-day gain against the dollar in nearly three weeks on Oct. 4, climbing 0.9 percent as the ECB’s Draghi said the currency was irreversible and the central bank’s decision to buy bonds helped ease tensions.
The ECB is ready to start bond purchases under its plan known as Outright Monetary Transactions “once all the prerequisites are in place,” Draghi said at a press conference in Ljubljana, Slovenia. After last month’s policy meeting, he unveiled a program of unlimited debt buying to cap borrowing costs for debt-ridden nations.
South Africa’s rand was the worst performer among major currencies this week as strikes spread across the nation’s mining and transport industries. The currency tumbled yesterday to 8.8465 per dollar, the weakest level since April 2009, and ended the week down 5.3 percent at 8.7793.
Implied volatility among major currencies, which signals the expected pace of price swings, reached an almost five-year low this week. It touched 7.5 percent, the least since Oct. 16, 2007, a JPMorgan Chase & Co. index for Group-of-Seven currencies showed. Lower volatility makes investments in currencies with higher key lending rates more attractive because the risk in such trades is that market moves will erase profit. The five-year average is 12.4 percent.
The Australian dollar fell against all of its most-traded peers except the rand after the nation recorded its widest trade deficit since 2008 and the Reserve Bank of Australia unexpectedly lowered its benchmark interest rate to 3.25 percent, the lowest since 2009.
The Aussie dropped 1.8 percent to $1.0187 and reached $1.0152, the weakest level since July 13. It lost 0.9 percent to 80.14 yen.
New Zealand’s dollar, nicknamed the kiwi, dropped versus the greenback for the first week since August after data showed China’s non-manufacturing industries grew at the weakest pace since at least March 2011. China is New Zealand’s second-largest import market and Australia’s biggest trade partner.
The kiwi depreciated 1.5 percent to 81.80 U.S. cents. It touched 81.53 cents, the lowest since Sept. 11.