The dollar fell for the first time in five days, ending its longest rally in two months, after a report showed services unexpectedly declined in December.
The euro climbed from a one-month low against the dollar as industry data confirmed the region’s services output expanded for a fifth month before the European Central Bank discusses interest rates on Jan. 9. South Korea’s won tumbled on bets the central bank will cut borrowing costs. South Africa’s rand gained after Moody’s Investors Service said the country will retain its investment-grade credit rating.
“There was a bit of dollar weakness off that data,” Alan Ruskin, the New York-based global head of Group of 10 foreign-exchange at Deutsche Bank AG, the world’s largest currency trader, said in a phone interview. “Over the year, we’re still constructive on the dollar” as the U.S. economic outlook improves.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, dropped 0.2 percent to 1,023.87 at 5 p.m. in New York after climbing to 1,029.67 on Jan. 2, the highest since Sept. 9. It completed a six-day rally on Nov. 1.
The dollar fell 0.3 percent to 1.3629 per euro after rising to $1.3572, the highest level since Dec. 5. The greenback slid 0.6 percent to 104.22 yen, while the Japanese currency advanced 0.3 percent to 142.04 per euro.
South Korea’s won weakened the most in six months against the dollar the dollar, dropping 1 percent to close at 1,065.42. The currency jumped 7.2 percent against the greenback in the past six months.
The strong won is contributing to tighter monetary conditions that may hurt the recovery and prompt the central bank to cut its policy rate at a meeting this week, Goldman Sachs Group Inc. said in an e-mailed note.
“The early trend to the year appears to have been to liquidate or take profit on trades that did quite well through the second half of 2013,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. The won still looks “expensive” at these levels, he said.
South Africa’s rand gained as Moody’s said in an e-mailed report that the nation’s debt levels are “manageable” and a pickup in demand from Europe and the U.S. is “promising” for growth in 2014. The nation’s rating will probably remain in the Baa range “for the foreseeable future,” it said. Moody’s rates South Africa Baa1, the third-lowest investment level, with a negative outlook.
The rand climbed 1 percent to 10.6496 per dollar after sliding to 10.76 on Jan. 3, the weakest since November 2008. The currency tumbled 19 percent last year.
The yen gained after dropping 14 percent in the past 12 months for the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar climbed 3.8 percent and the euro advanced 8.4 percent, the best performer.
Hedge funds and other large speculators trimmed bets the yen will weaken from almost a seven-year high, according to data from the Commodity Futures Trading Commission. The difference in the number of wagers on a decline in the currency compared with those on a gain -- so-called net shorts -- was 135,228 as of Dec. 31, compared with 143,822 a week earlier that was the most since July 2007.
The dollar declined against most major peers as the Institute for Supply Management non-manufacturing index decreased to 53 last month from 53.9 in November, a report from the Tempe, Arizona-based group showed today. The median projection in a Bloomberg survey of 69 economists was 54.7. Estimates ranged from 53 to 57.7. Readings above 50 indicate growth in the industries that make up 90 percent of the economy.
“The ISM data was just one thing -- U.S. data has been surprising on the upside,” said Thanos Vamvakidis, a currency strategist at Bank of America Merrill Lynch in London. “In the short term, euro-dollar will stay in the current range. Looking forward, as tapering continues, and even as the ECB remains on hold, the euro will gradually weaken.”
Official data last week showed U.S. manufacturing expanded for a seventh month in December, while jobless claims fell by 2,000 to 339,000 in the period ended Dec. 28.
Fed officials said Dec. 18 they would trim monthly purchases of bonds to $75 billion from $85 billion starting this month. The central bank will probably reduce its quantitative easing in $10 billion increments over the next seven meetings, before ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg on Dec. 19.
The euro rose for the first time in three days against the dollar as Markit Economics said its services index, based on a survey of purchasing managers, was 51 last month from 51.2 in November. That’s in line with an initial estimate on Dec. 16. A reading above 50 indicates expansion.
Europe has a “better balance of payments, lack of stimulus, external demand amid tightening periphery spreads,” Geoffrey Yu, a senior currency strategist at UBS AG in London, said via e-mail message, explaining investors’ cautious optimism on the European economic recovery.