May 31 (Bloomberg) -- The euro dropped from the highest level in three weeks versus the dollar as demand for the currency bloc’s assets faded after data showed German retail sales fell and the region’s unemployment rose to a record.
The dollar gained as stronger-than-forecast data on U.S. business activity and consumer confidence overshadowed an unexpected drop in consumer spending, bolstering bets the Federal Reserve will reduce stimulus. The yen strengthened versus all of its 16 most-traded peers. A gauge of expected price swings for the euro climbed to a two-month high.
“The disappointing data we saw out of the euro zone, that’s really overshadowing the disappointing news we had earlier today on the U.S. consumer,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview from Washington. Later U.S. reports including the one on consumer confidence “pointed to how the case remains pretty solid for the Fed to pull back on stimulus before too long.”
Europe’s shared currency weakened 0.4 percent to $1.2999 at 5 p.m. New York time, paring a weekly gain to 0.5 percent. It rose to $1.3061 yesterday, the most since May 9. The euro depreciated 0.6 percent to 130.64 yen. Japan’s currency gained 0.3 percent to 100.45 per dollar and climbed as much as 0.5 percent to 100.22, the strongest level in three weeks. The yen has gained 0.9 percent this week against the greenback.
The Japanese currency fell 3 percent against the dollar in May in its eighth consecutive monthly decline, the longest losing streak since 1996. The dollar gained 1.3 percent versus the euro.
Futures traders increased their bets that the yen will weaken against the dollar to the most since July 2007. The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan’s currency compared with those on a gain, known as net shorts, was 99,769 contracts on May 28, versus 95,186 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
Traders increased wagers the euro will fall against the greenback to the most since November. Net short-bets totaled 84,644 on May 28, from 80,949 a week earlier.
Trading in over-the-counter foreign-exchange options totaled $36 billion, compared with $37 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate was $7 billion, the largest share of trades at 19 percent. Euro-dollar options were the second most-actively traded, at $5.7 billion, or 16 percent.
Dollar-yen options trading was 45 percent below the average for the past five Fridays at a similar time in the day. Euro-dollar options trading was 13 percent above average.
The South African rand fell as much as 2.4 percent to 10.2847 per dollar, the weakest since March 2009, before paring its loss to 0.5 percent. It slid 5.1 percent this week. The currency fell earlier in the week amid concern the government isn’t doing enough to end labor unrest at the nation’s mines.
“We remain structurally bearish on the rand,” Matthew Sharratt, an economist at Bank of America Merrill Lynch in Johannesburg, wrote in a note to clients today. “Sentiment remains negative and there appear to be few positive catalysts in the pipeline.”
Hungary’s forint fell versus most of 31 major peers amid concern the central bank may keep lowering interest rates. The Magyar Nemzeti Bank, which cut borrowing costs over the past 10 months, has no target for its benchmark rate, the state news agency MTI quoted Deputy President Adam Balog as saying.
The forint sank 1.2 percent to 228.31 per dollar. It declined 0.8 percent to 296.73 per euro.
The Brazilian real slid to the weakest level since May 2009, depreciating 1.8 percent to 2.1495 per dollar before trading at 2.1411. The real has tumbled 6.5 percent in May on signs of economic weakness and bets that the U.S. central bank will curtail its program of bond purchases, which has buoyed emerging-market assets.
The euro weakened as retail sales in Germany dropped 0.4 percent in April, the Federal Statistics Office in Wiesbaden said. A Bloomberg survey forecast a 0.2 percent increase. The euro-area jobless rate rose to 12.2 percent, the European Union’s statistics office in Luxembourg said.
The one-week implied volatility of the euro, derived from option premiums, jumped to as high as 11.5 percent, the most since March 20.
“The long-term picture is that the European economy is still struggling,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview.
U.S. consumer confidence rose in May to the highest level in almost six years. The Thomson Reuters/University of Michigan final index of sentiment increased to 84.5 in May, the strongest since July 2007, from 76.4 a month earlier.
The MNI Chicago Report’s U.S. business barometer rose to 58.7 in May, beating all forecasts in a Bloomberg survey and the highest since March 2012, from 49 in April. A reading greater than 50 signals expansion.
The two reports followed Commerce Department data that showed U.S. household purchases dropped 0.2 percent in April.
The Fed is buying $85 billion of Treasury and mortgage debt a month in a bid to boost the economy by pushing down borrowing costs under its quantitative-easing stimulus strategy. Chairman Ben S. Bernanke said May 22 policy makers could cut the pace of the purchases if they see indications of sustained improvement in economic growth.
The dollar has climbed 5.2 percent this year, the most among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, amid speculation the U.S. economy is improving. The yen has been the biggest loser, slumping 11 percent as Prime Minister Shinzo Abe pledged to stem 15 years of deflation and the Bank of Japan doubled monthly bond purchases.
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