Dollar Drops From 3-Week High Versus Euro Amid Fed Speculation

The dollar fell from a three-week high versus the euro after data showed the U.S. unemployment rate was higher than forecast in December, fueling bets the Federal Reserve won’t hurry to end its stimulus efforts.

The euro rose earlier after minutes of the Fed’s last meeting showed yesterday the central bank might end its third round of monthly bond purchases under quantitative easing this year. The greenback climbed to the highest level against the yen since July 2010 as the Japanese currency had its longest weekly losing streak in almost 24 years. Brazil’s real and Mexico’s peso gained versus their major peers as risk appetite rose.

“I looked at the unemployment report, and I didn’t see any improvement,” Joseph Trevisani, chief market strategist at WorldWideMarkets Ltd. in Woodcliff Lake, New Jersey, said in a telephone interview. “Nobody one thinks their policy is going to end any time soon.”

The U.S. currency declined 0.2 percent to $1.3069 per euro at 5 p.m. New York time. It appreciated earlier to $1.2998, the strongest level since Dec. 12. The dollar strengthened 1.1 percent on the week. The U.S. currency gained 1 percent to 88.15 yen and touched 88.41, a 29-month high. The yen slid 1.2 percent to 115.21 per euro.

Reversed Bets

Futures traders reversed wagers that the euro will decline against the U.S. dollar, betting on a gain by the 17-nation currency for the first time since August 2011, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 5,126 on Jan. 1 , compared with net shorts of 2,549 a week earlier.

The U.S. unemployment rate was 7.8 percent after the November figure was revised to that level from a previously reported 7.7 percent. The median forecast for December of economists in a Bloomberg News survey was for 7.7 percent.

“Looking at the unemployment rate, the weakness in that number is clearly dollar-negative because of the Fed’s comments on QE3 and the market’s expectations around how long that will last,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview.

The Mexican peso and Brazil’s real were the biggest winners today among the greenback’s 16 most-traded counterparts.

The peso appreciated 0.5 percent to 12.7414 per dollar after earlier falling as much as 0.2 percent. The real strengthened 0.7 percent to 2.0325 per dollar.

Kiwi Climbs

New Zealand’s dollar, nicknamed the kiwi, gained 0.4 percent to 83.17 U.S. cents after falling 0.8 percent earlier.

Sterling declined versus most major peers after a report showed the U.K. services sector unexpectedly shrank in December. The pound fell 0.2 percent to $1.6069 and touched $1.6010, its lowest level since Dec. 7.

The pound weakened 0.7 percent over the past three months, the biggest loser after the yen among 10 developed-nation currencies monitored by the Bloomberg Correlation-Weighted Indexes. The Japanese currency slid 12 percent, while the dollar gained 0.1 percent.

The yen fell for an eighth week against the dollar, the longest stretch of losses since February 1989, tumbling 2.5 percent since Dec. 28. Even so, it’s still stronger than its 10-year average of 101.22 per dollar.

Japan’s newly installed Prime Minister Shinzo Abe said on Jan. 1 the most urgent issue for his country was to break out of currency appreciation and deflation. “Bold” monetary policy is one of the three prongs of his economic measures, he said.

BOJ Meeting

The Bank of Japan will hold its first 2013 policy meeting Jan. 21-22 after expanding its asset-purchase program by 10 trillion yen ($113 billion) at its last session on Dec. 20.

U.S. employers added 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated, Labor Department figures showed today in Washington. The median estimate of 82 economists surveyed by Bloomberg was for a gain of 152,000.

The dollar reached a two-week low versus the euro on Jan. 2 as safety demand ebbed a day after Congress approved a bill that made income-tax cuts from the George W. Bush-era permanent for most workers. The legislation broke a yearlong impasse over how to avert $600 billion in automatic tax boosts and spending cuts that were set to start taking effect this year.

Debt Ceiling

The greenback gained yesterday versus most major peers as speculation that U.S. policy makers will struggle to reach agreement on raising the nation’s $16.4 trillion debt ceiling fueled demand for safety.

The dollar extended gains yesterday after minutes of the Fed’s Dec. 11-12 meeting showed that board members said they’ll probably end the central bank’s $85 billion in monthly bond purchases some time in 2013. The Fed bought $2.3 trillion of Treasury and mortgage-related debt from 2008 to 2011 in the first two rounds of quantitative easing.

The central bank said Dec. 12 it would hold borrowing costs low “at least as long” as the unemployment rate remains above 6.5 percent and inflation projections are for no more than 2.5 percent. The jobless rate had stayed above 8 percent since February 2009 until it broke the trend in September.

Before it's here, it's on the Bloomberg Terminal.