The Dollar Index traded at almost its highest level in six months as service industries in the U.S. expanded in February at the fastest pace in a year, adding to signs of economic acceleration.
The U.S. currency was supported after the Institute for Supply Management’s non-manufacturing index exceeded forecasts, fueling speculation the Federal Reserve may have scope to reduce monetary stimulus earlier than projected. The yen erased losses before the Bank of Japan convenes for a two-day meeting starting tomorrow. Australia’s currency climbed versus the dollar as the central bank kept interest rates on hold.
“ISM services were better than expected and markets are higher,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “The market is responding positively to the fundamentals. If data improve, that reduces the likelihood of prolonged quantitative easing, which would cause the dollar to strengthen.”
The dollar fell 0.2 percent to 93.29 yen at 5 p.m. in New York, after decreasing as much as 0.6 percent, the biggest drop in almost a week. The greenback declined 0.2 percent to $1.3052 per euro after falling as much as 0.4 percent. The yen was little changed at 121.76 per euro.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fell 0.2 percent to 82.042. The gauge reached 82.509 on March 1, its highest level since Aug. 20.
The correlation between the Dollar Index and the Standard & Poor’s 500 Index, which have showed an inverse relationship since 2008, was negative 0.41 percent, after reaching the closest to moving in the same direction since June 2011 on Jan. 31. The correlation reached negative 0.76 in February 2012.
The ISM index increased to 56 last month from 55.2 in January, the Tempe, Arizona-based group said today. Economists projected the guage would be little changed at 55, according to the median estimate in a Bloomberg survey. Readings above 50 signal expansion.
The Swedish krona climbed to its strongest level in six months versus the euro after Stockholm-based Swedbank said an index based on responses from about 200 purchasing managers in the services industry was a seasonally adjusted 54.6 in February compared with a revised 52.6 the previous month.
The krona appreciated 0.4 percent to 8.3265 per euro, after reaching the strongest since Aug. 29, and gained 0.5 percent to 6.3798 per dollar.
South Korea’s won strengthened the most in a month as exporters repatriated income following the currency’s biggest loss since Feb. 1 yesterday. The currency rose 0.6 percent to 1,087.04 per dollar after adding as much as 0.7 percent, its biggest increase since Feb. 4.
The Hungarian forint fell versus most of its 31 major counterparts on speculation the country’s government will use expanded powers at the central bank to deplete foreign-currency reserves. It declined 0.3 percent to 228.33 per dollar after weakening to 230.03, its lowest level since Sept. 6.
The yen weakened 11.3 percent in the past three months, the worst performer among 10 developed market currencies measured by Bloomberg Correlation-Weighted Indexes. It has dropped amid speculation Prime Minister Shinzo Abe’s push to expand stimulus will debase the currency. The prime minister’s nomination for the next BOJ governor, Haruhiko Kuroda, said yesterday the central bank will do whatever is needed to end 15 years of deflation.
Options traders are the least bullish on the dollar versus the yen since Nov. 14, according to 25-delta option risk reversal rates. Traders are paying a 0.46 percent premium for dollar calls, or the right to buy the greenback versus the Japanese currency, relative to calls, which allow for purchases. That is down from the 2012 high of 1.50 percent reached on Dec. 13.
Pacific Investment Management Co.’s Bill Gross said the yen is likely to weaken to 100 per dollar on concern that stimulus measures by the Bank of Japan will debase the currency.
“We’re going to see a lot of printing of yen,” Gross said during an interview on Bloomberg Television’s “Market Makers” with Erik Schatzker and Stephanie Ruhle. “You want to avoid the currency that prints the most, that endorses quantitative easing to the fullest extent.”
The yen is estimated to weaken to 95 to the greenback by the end of the year, while the euro is forecast to be about unchanged at $1.29, according to the median estimate of economists surveyed by Bloomberg.
The so-called Aussie rose from an almost eight-month low reached yesterday after the Reserve Bank of Australia left its overnight cash-rate unchanged at 3 percent.
The Aussie snapped a three-day decline versus the dollar, gaining 0.6 percent to $1.0258. It dropped to $1.0115 yesterday, the lowest since July 12.