Dollar Falls From 5-Year High on Speculation It Gained Too Fast

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The dollar declined from the highest level in more than five years amid speculation the currency may have strengthened too much, too fast.

The greenback slipped versus most of its 16 major peers after a gauge of the Bloomberg Dollar Spot Index’s relative strength exceeded 70 on Nov. 28, a level some traders consider a signal an asset may reverse course. Russia’s ruble led a drop by some commodity-producing nations’ currencies as oil reached a five-year low. The yen gained after weakening to a seven-year low as Moody’s Investors Service cut Japan’s credit rating.

“We will be range-bound until we get something that changes the perception a little bit on either here or Europe or Asia,” said Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York. “The trend is still intact, and I still think that the dollar’s going to go higher.”

Bloomberg’s dollar index, which tracks the greenback against the currencies of 10 trading partners, sank 0.3 percent to 1,103.71 at 5 p.m. in New York. It closed on Nov. 28 at 1,106.90, the highest level since March 2009, as it gained for a sixth consecutive week.

The measure’s relative-strength index reached 70.3 Nov. 28, the highest level in three weeks.

The dollar fell 0.2 percent to 118.40 yen, after earlier touching 119.14 yen, the strongest since August 2007. The U.S. currency depreciated 0.1 percent to $1.2470 per euro. The 18-nation currency was little changed at 147.64 yen.

Dollar Longs

Hedge funds and other large speculators increased wagers on the dollar’s strength versus eight of its major peers to a record last week. The difference in the number of positions on gains versus those on declines -- net longs -- was 418,825 as of Nov. 25, according to data released today by the Washington-based Commodity Futures Trading Commission. It was 393,529 a week earlier.

Norway’s krone gained the most among the dollar’s 31 major counterparts as a measure of the country’s manufacturing rose. The currency climbed 1.3 percent to 6.9381 per U.S. dollar after falling for three consecutive months.

Sterling rallied, adding 0.5 percent to $1.5730, after U.K. manufacturing growth also exceeded forecasts, accelerating at the fastest pace in four months.

The Bank of England will hold its key interest rate at 0.5 percent when it meets Dec. 4, according to all 50 analysts surveyed by Bloomberg News. The European Central Bank, which meets the same day, is forecast to maintain its main refinancing rate at 0.05 percent.

Japan Rating

The yen strengthened after sinking as Moody’s downgraded Japan to A1 from Aa3, citing heightened uncertainty over the nation’s fiscal deficit-reduction goals. The currency rallied versus most of its 31 major peers.

“The yen was resilient after the rating cut because the move was expected,” said Athanasios Vamvakidis, head of Group of 10 foreign-exchange strategy at Bank of America Merrill Lynch in London.

Prime Minister Shinzo Abe officially starts his campaign tomorrow for a new mandate to pursue unprecedented monetary easing and reform, before national elections Dec. 14. In an Asahi newspaper poll, 47 percent of respondents said the economy would be an important factor in their decision.

Capital spending rose 5.5 percent in the third quarter, a report showed today, exceeding the median estimate of economists for a 1.8 percent gain.

Crude Oil

Russia’s ruble led declines versus the U.S. currency after West Texas Intermediate reached $63.72 a barrel in New York, the lowest intraday level since July 2009, before rebounding to $69.29. The 2014 high was $107.73 in June. The ruble weakened 1.6 percent to 51.22 per dollar and touched a record 53.95.

Other oil exporters’ currencies also dropped. Nigeria’s naira depreciated to a record 184.51 per dollar, and Malaysia’s ringgit had its biggest two-day decline since the 1997-98 Asian crisis. It reached 3.4392 per greenback, the weakest since February 2010.

The Australian dollar touched 84.17 U.S. cents, the weakest in four years, as the Bloomberg Commodity Index reached its lowest level since 2009 before rebounding. The Reserve Bank of Australia will hold its key interest rate at 2.5 percent when it issues a policy decision at 10:30 p.m. New York time, according to the median estimate of 30 analysts surveyed by Bloomberg News.

‘Profit-Taking’

The sharp drop in petroleum prices will help spur consumer spending in the U.S. and underpin an economy that still requires patience before interest rates are increased, Federal Reserve Bank of New York President William C. Dudley said. Investors’ expectations for a Fed rate increase in mid-2015 are reasonable, he said at Bernard M. Baruch College in New York.

An Institute for Supply Management Inc. index showed U.S. manufacturing expanded more than forecast in November, even as it slowed from the previous month. The measure was at 58.7, compared with 59 in October and a Bloomberg survey’s estimate of 58, figures from the Tempe, Arizona-based group showed. A reading above 50 indicates growth.

The U.S. dollar was the biggest winner over the past three months among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback added 7.1 percent and the euro rose 1.1 percent, while the yen slumped 7 percent.

“The dollar’s broad outperformance this year leaves it vulnerable to profit-taking as the year comes to a close,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “Underlying fundamentals remain positive and should continue to support it through at least the early stages of next year.”

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