The dollar weakened the most in more than 12 months, dropping from a four-year high, as uneven U.S. labor-market data refueled the debate over when the Federal Reserve will raise interest rates.
The greenback depreciated versus most of its 31 major peers, with Brazil’s real climbing the most in three years as President Dilma Rousseff faces a runoff against surprise second-place candidate Aecio Neves. The yen strengthened from almost its weakest since 2008 before the Bank of Japan’s policy decision tomorrow. South Africa’s rand gained the most in almost four months after Deputy Reserve Bank Governor Lesetja Kganyago was announced to lead the central bank.
“In our view, it’s just a minor pull back,” Matthew Derr, a foreign-exchange strategist at Credit Suisse Group AG, said by phone from New York. “We saw the move on Friday really kick in after payrolls and it seems like the following few days are just consolidation of that.” U.S. employers added more jobs than forecast in September, data released Oct. 3 showed.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.9 percent to 1,068.68 at 5 p.m. in New York after declining 1.1 percent, the most since Sept. 18, 2013. It closed at 1,078.65 on Oct. 3, the highest since June 2010.
The yen gained 0.9 percent to 108.78 per dollar after reaching 110.09 on Oct. 1, the weakest since August 2008. The greenback slipped 1.1 percent to $1.2655 per euro after touching $1.2501 on Oct. 3, the strongest level since August 2012. The 18-member common currency rose 0.2 percent to 137.66 yen.
Brazil’s real added as much as 3.6 percent, the most since September 2011, as Neves, a candidate favored by investors, faced a runoff with Rousseff in the next round of presidential elections on Oct. 26.
The rand strengthened as much as 1.3 percent, the most on an intraday basis since June 18, as Kganyago, one of two favored candidates, was named to succeed Governor Gill Marcus next month.
The euro advanced against the U.S. currency, three days after touching a two-year low, even as German factory orders fell the most since 2009.
The yen strengthened as the Bank of Japan, which buys about 7 trillion yen ($64 billion) of government bonds a month, started a two-day meeting today.
The BOJ will leave policy settings unchanged tomorrow, according to all 33 economists surveyed by Bloomberg News between Sept. 26 and Oct. 2. About a quarter of those polled predict the central bank will boost stimulus this year, while a further 42 percent expect policy makers to expand quantitative easing in the future.
While BOJ Governor Haruhiko Kuroda said last week that he doesn’t think a weak yen is bad for the Japanese economy overall, Prime Minister Shinzo Abe today said the government will watch for effects of the currency’s decline and take measures.
“If Kuroda again states there are few demerits to a weaker yen, it would be a catalyst for more yen selling,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo.
Fed Chair Janet Yellen’s dilemma over when to raise borrowing costs wasn’t made any clearer by conflicting employment data on Oct. 3.
While the U.S. added 248,000 workers and the jobless rate declined to a six-year low in September, the participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, fell to the lowest level since February 1978. Average hourly earnings were unchanged.
“The dollar’s been very vulnerable to a correction,” said Mark McCormick, a foreign-exchange strategist in New York at Credit Agricole SA. “Given the economic fundamentals and given the landscape of what we’ve seen over the past few months in terms of where U.S. data’s playing out and where the U.S. rates story’s headed, I think the dollar’s definitely overshot.”
The Bloomberg Dollar Spot Index’s 14-day relative strength index fell to 66 after rising as high as 86 last week, above the 70 level that signals to some traders that gains have been excessive and may be poised to reverse.
The Fed is on track to end stimulatory bond purchases that supported the U.S. economy through the recession, and is considering timing for the first interest-rate increases since 2006. The central bank releases minutes from its Sept. 16-17 meeting on Oct. 8. It convenes again on Oct. 29.
The dollar jumped 6.7 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen weakened 0.8 percent and the euro declined 1.6 percent.
For the dollar, “it’s a big journey in a few days, so I expect things to maybe slow down just a little bit until we get another catalyst,” said Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York. “The Fed’s being fairly data dependent here. If things improve dramatically, it will be hard to defend not doing anything.”
(An earlier version of this article was corrected to reflect that the latest U.S. employment data came out Oct. 3, not Sept. 3.)