The dollar gained versus the majority of its 16 most-traded peers before U.S. data forecast to show tomorrow that retail sales rose for a fourth month, backing the case for the Federal Reserve to reduce stimulus.
The yen fell the most in a week against the dollar after a report showed Japan’s economy slowed more than analysts forecast, fueling speculation the central bank will need to boost measures to spur growth. The Bloomberg U.S. Dollar Index rose for the first time in seven days as two regional Fed economists said the effect of stimulus efforts has been more limited than estimated. South Africa’s rand fell as stocks dropped, damping demand for higher-yielding assets.
“Forward expectations are certainly helping the dollar to push sharp gains,” Ravi Bharadwaj, a senior market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “Market participants are hyper-sensitive to data right now, so you’d expect a strong dollar reaction if there’s a deviation from what investors have predicted. There’s also been a bit of profit-taking.”
The Bloomberg U.S. Dollar Index added 0.4 percent to 1,020.54 at 5 p.m. New York time, the biggest intraday gain since Aug. 1.
The greenback increased 0.3 percent to $1.33 per euro. The dollar climbed 0.7 percent to 96.90 yen after gaining 0.8 percent, also the most since Aug. 1. Japan’s currency dropped 0.4 percent to 128.87 per euro.
Switzerland’s franc declined versus the greenback as Swiss National Bank Vice President Jean-Pierre Danthine said the bank will abolish its ceiling of 1.20 versus the euro once it starts raising interest rates. The franc fell 0.4 percent to 92.58 centimes per dollar after declining the most since Aug. 1. The currency was at 1.2312 per euro.
The Brazilian real fell versus most major counterparts as swap rates rose for the first time in four sessions on speculation that faster inflation will prompt the country’s central bank to quicken the pace of borrowing cost increases. The currency dropped 0.7 percent to 2.2828 per dollar after touching 2.2620, the strongest since July 29.
The rand declined for the first time in three days before the release of retail-sales data on Aug. 14 that economists said will add to evidence of a slowdown in Africa’s biggest economy. The currency fell 0.7 percent to 9.8884 per dollar after strengthening to 9.6994 on Aug. 9, the most since July 26.
JPMorgan Chase & Co.’s G-7 Volatility Index touched 9.04 percent, the lowest intraday level since May 9.
The Fed’s unprecedented expansion of its balance sheet to a record $3.6 trillion from $900 billion in August 2008 has probably given a more limited boost to the U.S. economy than previously estimated, two regional Fed economists said.
Asset-purchase programs “appear to have, at best, moderate effects on economic growth and inflation,” Vasco Curdia, an economist at the San Francisco Fed, and Andrea Ferrero, an economist at the New York Fed, said in a research note released today. “Communication about the beginning of federal funds rate increases will have stronger effects than guidance about the end of asset purchases.”
U.S. retail sales climbed 0.3 percent in July after rising 0.4 percent in June, according to a Bloomberg survey before tomorrow’s Commerce Department report. The Fed is buying $85 billion of Treasuries and mortgage debt each month to put downward pressure on interest rates.
“A better-than-expected retail-sales number would suggest that the U.S. economy is healthy, and could reignite expectations of tapering happening in September,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, said in a telephone interview. “We had a fairly weak U.S. dollar over the past week, so some of the strength could just be repositioning and profit-taking.”
Japan’s gross domestic product expanded 2.6 percent from a year earlier, compared with a revised 3.8 percent increase in the previous three months, the Cabinet Office said. Economists surveyed by Bloomberg had forecast growth of 3.6 percent. Industrial production fell 3.1 percent in June from the previous month, the Trade Ministry said.
Traders have reduced bets the yen will weaken, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the currency compared with those on a gain -- so-called net shorts -- was 80,213 on Aug. 6, compared with 82,135 a week earlier.
The yen has slumped 20 percent in the past 12 months, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro strengthened 10 percent and the dollar appreciated 1.2 percent.
Trading in over-the-counter foreign-exchange options totaled $17 billion, compared with $14 billion on Aug. 9, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the Australian dollar-U.S. dollar exchange rate amounted to $2.9 billion, the largest share of trades at 17 percent. Options on the U.S. dollar-yen rate totaled $2.4 billion, or 15 percent.
Aussie-greenback options trading was 37 percent more than the average for the past five Mondays at a similar time in the day. Dollar-yen options trading was 60 percent less than average.