Dollar Weakens on Signals of U.S. Economic Slowing; Zloty Rises

The dollar fell the most in three weeks as a report showing U.S. manufacturing slowed added to speculation whether the economy is strong enough for the Federal Reserve to accelerate reductions in its asset-purchase program.

The U.S. currency fell versus most major peers after its biggest monthly gain in January since May as a global selloff of emerging-market currencies prompted investors to seek haven assets. The euro strengthened against the dollar before the European Central Bank meets this week amid speculation slowing inflation may prompt officials to consider additional stimulus. The Polish zloty rose while a broader measure of emerging-market currencies extended last week’s losses.

“The ISM number is the main driver in the market,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “It’s not a good number for risk currencies. That’s why we’re seeing the move for dollar-yen.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, fell 0.2 percent to 1,029.87 at 5 p.m. New York time. It declined as much as 0.3 percent in the biggest drop since Jan. 10.

Emerging Markets

The greenback fell 0.3 percent to $1.3525 per euro, after reaching $1.3477, the highest level since Nov. 22. The yen added 1 percent to 100.98 per dollar, and gained 0.8 percent to 136.57 per euro.

JPMorgan Chase & Co.’s volatility index for the currencies of Group of Seven nations rose to 8.85 percentage points, the highest in a month.

China’s official manufacturing gauge fell to 50.5 in January, the China Federation of Logistics and Purchasing said on Feb. 1. The measure reached the lowest level in six months and added to signs government efforts to rein in excessive credit may cool growth in the world’s second-biggest economy.

Developing-nation currencies fell 0.6 percent to a record low of 84.90, according to JPMorgan Emerging Markets Currency Index. The Bloomberg JPMorgan Latin American Currency Index slipped as much as 1.1 percent to 89.32, the gauge’s lowest level on a closing basis since 2003.

Colombia’s peso fell after Finance Minister Mauricio Cardenas said on Caracol Radio that a weaker peso would be “healthy.” The currency dropped 1.5 percent to 2,046 per dollar, and touched the weakest since December 2009 earlier.

Zloty Rise

The zloty strengthened after Prime Minister Donald Tusk said there’s “tangible sign of hope” for the nation’s economy this year.

While the government has “institutions equipped with various tools and instruments necessary to react, right now there is no need,” Tusk told reporters on Feb. 1. “When dealing with volatility on a global scale, one needs to be very cautious about intervening.”

The Polish currency rose 0.5 percent to 3.1387 per dollar.

A gauge of euro-area manufacturing, based on a survey of purchasing managers, rose to 54 last month from 52.7 in December, Markit Economics said.

Euro-area consumer prices climbed an annual 0.7 percent last month after a 0.8 percent advance in December, the European Union’s statistics office said last week. That’s the fourth consecutive reading of less than 1 percent while the ECB aims to keep inflation at just under 2 percent.

Euro Support

“Often when there are periods of stress and equity markets are doing quite badly, the euro tends to hold up,” said Kiran Kowshik, a currency strategist at BNP Paribas SA in London. “The real driver this week will be the ECB. We think they could sound dovish at the meeting, which will keep the euro under pressure.”

Canada’s dollar rose for a third day to C$1.1119 per greenback, the longest run of gains in six weeks. The rebound from its worst start to a year since at least 1972 may persist as speculators cash out near record bets against the currency, according Royal Bank of Canada, citing technical measures.

The currency’s relative strength index moved out of oversold territory for the first time in 15 days after the currency fell past C$1.12 per U.S. dollar for the first time in 4 1/2 years on Jan. 31. Data from the Commodity Futures Trading Commission showed last week that hedge funds and other large speculators decreased bets against the currency.

Technical Levels

“We failed to stay above the C$1.12 level, and I think people got a little bit nervous and started taking profit on their short-Canada positions,” George Davis, chief technical analyst for fixed-income and currency strategy at RBC, said by phone from Toronto. “We’re overdue for at least a bit of a corrective pullback that would start to bring the valuations back to more acceptable or more neutral levels.”

Fed officials maintained the pace of reduction in monthly asset purchases on Jan. 29, trimming its monthly bond buying by $10 billion to $65 billion. Policy makers have kept the benchmark interest-rate target for overnight loans between banks at zero to 0.25 percent since 2008.

The Institute for Supply Management’s factory index decreased to 51.3 in January from 56.5 the prior month, the Tempe, Arizona-based group’s report showed today. The median forecast of 85 economists surveyed by Bloomberg called for a decline to 56. Estimates ranged from 54 to 57.5.

“It’s an important week and the ISM number started off in a disappointing fashion, it might be a good opportunity to rein in some of the U.S. economic optimism ahead of payrolls,” Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co., said in a phone interview. “U.S. growth for last quarter was decent” and the “dollar’s positive trajectory is still in place,” he said.

Gross domestic product may expand at a 2.5 percent annual rate in the first quarter, according to the median estimate in a Bloomberg survey of economists. GDP rose at a 3.2 percent rate in the fourth quarter, down from a 4.1 percent pace in the third quarter.

The dollar rose 2.3 percent during the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro added 2.4 percent while the yen lost 0.4 percent.

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