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Dollar Falls on Signs of Economic Cooling; Canada Currency Gains

The dollar fell against the majority of its 16 most-traded peers after an unexpected slump in a regional manufacturing index bolstered the argument for the Federal Reserve to delay winding down its bond-buying program.

The yen reversed losses versus the dollar after U.S. housing-price gains trailed forecasts. Data since a July 5 report said U.S. payrolls rose more than forecast have shown housing starts and existing-home sales unexpectedly fell. Fed Chairman Ben S. Bernanke told Congress last week it was “too early” to decide to begin tapering asset purchases. Canada’s dollar climbed after the nation’s retail sales jumped.

“The growth data, aside from employment, have been showing signs of weakness,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview. “There is some focus on the weaker data, and with Bernanke out of the way, squaring up of positions is the name of the game in the near term.”

The dollar depreciated 0.2 percent to 99.43 yen at 5 p.m. New York time after rising 0.5 percent earlier to 100.18. The U.S. currency declined 0.3 percent to $1.3223 per euro and touched $1.3239, the weakest level since June 21, after gaining 0.2 percent earlier. The Japanese currency was little changed at 131.48 per euro.

The European currency extended gains versus the dollar before data tomorrow forecast to show increases this month in manufacturing and services in the 17-nation region.

Forint Drops

Hungary’s forint fell versus most major counterparts after the central bank cut its main interest rate for a 12th consecutive month and President Gyorgy Matolcsy said he expects to extend monetary easing. The currency depreciated 0.5 percent to 295.68 per euro after strengthening 0.5 percent yesterday.

Canada’s dollar climbed versus its U.S. counterpart after a government report showed Canadian retail sales increased in May at the fastest pace in three years. The currency strengthened 0.5 percent to C$1.0287 to the greenback.

South Africa’s rand strengthened for a third day, advancing 1.5 percent to 9.6826 versus the dollar.

JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of currency fluctuations, declined to 9.22 percent and touched 9.18 percent, the lowest intraday level since May 9. The gauge has dropped for nine consecutive days, the longest stretch of declines since July 2012. It touched 11.96 percent, the highest this year, on June 24.

Volatility ‘Fading’

Volatility “has been fading since the beginning of the month, and it’s continuing that process,” Sebastien Galy, a senior foreign-exchange strategist in New York at Societe Generale SA, said in a telephone interview. “It’s been fading for two main reasons. No. 1 is Bernanke trying to push a dovish angle, and No. 2 is a less bearish angle on China.”

The yen weakened against most of its major peers after Chinese news organizations reported Premier Li Keqiang’s government sees 7 percent growth as the minimum acceptable pace of growth, signaling the nation will act to support the economy if needed.

The dollar erased a gain versus the yen after the Fed bank of Richmond’s factory index slid to negative 11 for July. Readings greater than would zero signal expansion in the region that includes the Carolinas, the District of Columbia, Maryland, Virginia and West Virginia. Economists in a Bloomberg survey projected a reading of 9.

U.S. house prices rose 0.7 percent in May from April, compared with a 0.8 percent gain forecast in a Bloomberg survey, Federal Housing Finance Agency figures showed. Other data this month showed housing starts in the U.S. fell in June to the lowest in almost a year, existing-home sales decreased and retail sales rose less than forecast. The Labor Department reported U.S. employers added 195,000 jobs in June.

Fed Purchases

The Fed buys $85 billion of debt each month as part of its quantitative-easing stimulus to cap borrowing costs, a strategy that typically debases currencies. It has held the benchmark interest-rate target unchanged at between zero and 0.25 percent since 2008 to support the economy.

A Bloomberg survey showed more economists are predicting the U.S. central bank will trim its monthly bond buying by $20 billion in September.

Bernanke said last week in two days of congressional testimony that the purchases “are by no means on a preset course” and may be reduced more quickly or expanded as economic conditions warrant. He said reducing bond-buying wouldn’t constitute policy-tightening.

‘Bearish Factor’

“The market is getting used to the idea that tapering is not tightening,” said Jane Foley, senior currency strategist at Rabobank International in London. “The main message is accommodation, and that’s a bearish factor for the dollar.”

The U.S. currency has risen 4.2 percent this year among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has advanced 4.5 percent, while the yen has been the worst performer, dropping 10 percent.

Trading in over-the-counter foreign-exchange options totaled $23 billion, compared with $25 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 amounted to $4.3 billion, the largest share of trades at 19 percent. Sterling-dollar options totaled $3.3 billion, or 14 percent.

Dollar-yen options trading was 36 percent less than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Pound-dollar options trading was 66 percent more than average.

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