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Dollar Drops on Bets Fed to Delay Slowing Stimulus; Aussie Falls

U.S. Currency
Sheets of five dollar notes sit on a pallet before being printed with serial numbers at the Bureau of Engraving and Printing in Washington, D.C. Photographer: Andrew Harrer/Bloomberg

The dollar had its first back-to-back weekly losses against the euro in a month as weaker-than-forecast economic data added to bets the Federal Reserve will put off slowing stimulus to help the U.S. economy strengthen.

The greenback touched a two-year low against the euro as U.S. employers added fewer jobs than forecast and consumer confidence sagged. Federal Open Market Committee policy makers meet next week. Currencies of commodities-exporting countries including New Zealand and Australia slid as risk appetite ebbed and bets China’s central bank may tighten policy damped growth prospects. The yen gained for a second week versus the dollar.

“The greenback is likely to remain downbeat next week in the run-up to the FOMC,” Nordine Naam, an interest-rate strategist at Natixis in Paris, said yesterday via e-mail. “The dollar extended its downward correction in reaction to the disappointing September employment data.”

The U.S. currency depreciated 0.8 percent to $1.3802 per euro this week in New York and touched $1.3832 yesterday, the weakest level since November 2011. The dollar declined 0.3 percent to 97.42 yen. Europe’s 17-nation shared currency gained 0.5 percent to 134.46 yen in a third weekly advance. It touched 135.51 yen on Oct. 22, the highest since November 2009.

A gauge of price swings among Group of Seven nations’ currencies fell for an eighth week, the longest streak since 2005. JPMorgan Chase & Co.’s G7 Volatility Index declined to as low as 7.49 percent on Oct. 24, the least since Dec. 21. The 2013 average is 9.4 percent.

Winners, Losers

Sweden’s krona and the Swiss franc were the biggest winners among the dollar’s 16 most-traded counterparts tracked by Bloomberg, gaining 1.6 percent and 1 percent. The dollars of New Zealand, Canada and Australia were the biggest losers, dropping 2.6 percent, 1.6 percent and 1 percent.

The Aussie and New Zealand’s currency, nicknamed the kiwi, declined for the first week in almost a month as data showed home prices in China’s four major cities rose the most since January 2011, adding to concern property-market bubbles are forming.

The People’s Bank of China, which last week refrained from adding funds to markets, may lean toward policy tightening should inflation accelerate, Song Guoqing, a central-bank academic adviser, said Oct. 20.

‘Peaked Out’

“Aussie-dollar is increasingly looking like it’s peaked out for the time being,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview on Oct. 23. “The risk is that Chinese authorities once again try to clamp down on the property market. That’s bad news for commodities prices and bad news for Australia and the currency.”

Australia’s dollar weakened to 95.84 U.S. cents, and the kiwi dropped to 82.80 cents.

Commodities slid, with the Standard & Poor’s GSCI Index of raw materials sinking 2.2 percent, the most since June.

The euro has climbed to its strongest level on a trade-weighted basis since August 2011, according to Deutsche Bank AG’s EUR Trade-Weighted Index.

The shared currency’s strength “is now significant enough to potentially impact the ECB’s outlook for inflation, and it may comment on the euro in this context,” Jens Nordvig, managing director of currency research at Nomura Holdings Inc., Japan’s biggest brokerage, wrote in a note, referring to the European Central Bank. “An actual policy response -- beyond verbiage -- seems unlikely in the near-term.”

Nomura recommended investors bet on the euro appreciating against the yen. The ECB, which next meets on Nov. 7, has kept its benchmark interest rate at 0.5 percent since May.

‘Positive Euro’

The “market is turning quite positive euro,” Masafumi Takada, a director at BNP Paribas SA in New York, said Oct. 24. The European currency is gaining on “the back of U.S. downgrade fear, a weaker U.S. number, Fed tapering postponed.”

The euro may have gained too much, too fast against the greenback, a technical indicator signaled yesterday for a fourth straight day, the longest stretch since September 2012. The European currency’s 14-day relative-strength index was at 74, above the 70 level some traders see as a sign a drop may be imminent.

The Bloomberg U.S. Dollar Index fell to an eight-month low on Oct. 22 after data showed employers added 148,000 workers in September. That trailed the forecast for 180,000 and indicated the U.S. economy had little momentum leading up to the 16-day partial shutdown of the federal government this month by a deadlock in Congress. The Thomson Reuters/University of Michigan final U.S. consumer sentiment index for October decreased to 73.2, the lowest in 10 months, from 77.5 the prior month, data showed yesterday.

‘Set Tone’

The labor number “was definitely the main story that set the tone for the week and underpins what we’ve seen in the market,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview.

The Fed unexpectedly refrained at its meeting last month from slowing the pace of its asset purchases, saying it wanted more evidence of an economic recovery.

The central bank will delay tapering its $85 billion of monthly bond buying until its March 18-19 meeting, according to economists surveyed by Bloomberg on Oct. 17-18. A poll last month forecast the first reduction would be in December.

“While the Fed’s on hold and still pumping liquidity in, the dollar’s going to be soft against everything,” Jeremy Hale, head of macro strategy at Citigroup Inc. in London, said Oct. 24. “There’s a feeling that the debacle in Congress damaged the economy a little bit.”

The central bank buys Treasuries and mortgage-backed securities to push down long-term yields and spur growth, a move that tends to debase the greenback. The Fed meets on Oct. 29-30.

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