Dollar Drops Versus Peers Amid Fed Bond-Buying Bets; Rand Climbs

The dollar fell against 14 of its 16 most-traded peers before the Federal Reserve opens a two-day meeting tomorrow amid bets it will maintain bond purchases under quantitative easing for the foreseeable future.

The euro gained for a second day versus the dollar amid speculation the European Central Bank will cut its record-low benchmark rate further this week. South Africa’s rand climbed as precious metals rose, boosting the country’s export prospects. The dollar stayed weaker as data showed growth in U.S. personal spending slowed in March. Stocks rose.

“You get the sense the market is trying to return toward what it knows how to do, which is sell the dollar and buy risk,” Sebastien Galy, a foreign-exchange strategist at Societe Generale SA in New York, said in a telephone interview. “They are hoping for rate cuts and the like. They view negative data as being positive.”

The greenback dropped 0.5 percent to $1.3099 per euro at 5 p.m. New York time, extending this month’s decline to 2.1 percent. The U.S. currency declined 0.3 percent to 97.76 yen and reached 97.35, the lowest level since April 17. The euro gained 0.3 percent to 128.05 yen.

The South African rand surged the most in six months, rising against all of its 16 most-traded counterparts, as spot gold touched $1,478 an ounce, almost a two-week high. Yields on the government’s 10-year bonds slid to a record 6.27 percent. The rand rallied 1.2 percent to 8.9947 per dollar after jumping as much as 1.7 percent, the most since October.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $18 billion, compared with turnover of $26 billion on April 26, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $5 billion, the largest share of trades at 27 percent. Euro-dollar options were the second most actively traded, at $2.3 billion, or 13 percent.

Dollar-yen options trading was 57 percent below the average for the past five Mondays at a similar time in the day, and euro-dollar options trading was 37 percent below, according to Bloomberg analysis.

Brazil’s real fell versus most major peers as an inflation gauge was lower than forecast, spurring bets the central bank will limit increases in borrowing costs. The real slid 0.4 percent to 2.0073 per dollar.

Kiwi Climbs

New Zealand’s currency, nicknamed the kiwi, climbed against the U.S. currency before a report tomorrow forecast to show housing approvals rose 2 percent in March to the highest level since April 2008.The Reserve Bank said last week a housing boom may force it to raise interest rates.

The kiwi strengthened 1 percent to 85.67 U.S. cents and touched 85.76 cents, the highest since April 15.

The Standard & Poor’s 500 Index rose 0.7 percent.

The Fed, which meets April 30-May 1, is buying $85 billion of bonds each month in its third round of QE to put downward pressure on borrowing costs. While Chairman Ben S. Bernanke said after the previous meeting on March 20 that further labor-market gains were needed to consider reducing monetary easing, minutes showed officials discussed slowing the pace of buying.

“The market is just paring back a touch the whole tapering-of-QE3 idea,” Derek Halpenny, European head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London, said today. “Potentially the Fed statement could have some form of acknowledgment that there does seem to be some softening in the economic data. All of that makes for the potential for the dollar to be a little bit softer.”

U.S. Data

Household purchases, which account for about 70 percent of the U.S. economy, rose 0.2 percent after a 0.7 percent gain the prior month, Commerce Department data showed today. A Bloomberg survey of called for little change. Inflation cooled to the lowest level in more than three years, the report showed.

U.S. gross domestic product grew at a 2.5 percent annual rate last quarter, less than the 3 percent estimated by economists, the Commerce Department said April 26.

“The dollar is having kind of a weak day across the board,” Sireen Harajli, a currency strategist in New York at Credit Agricole SA, said today in a telephone interview. “We expected a soft spot in U.S. growth in the second quarter, and that’s pretty much what’s happening. What it really means is that the Fed is not going to change its QE policy.”

The euro advanced for the first time in three days against the yen after Italy ended two months of political stalemate yesterday, swearing in a new prime minister, Enrico Letta. Italian 10-year bonds gained for the first time in four days, pushing yields down to 3.91 percent.

The euro rose even as economists in a Bloomberg survey predicted the ECB will cut its main refinancing rate to 0.5 percent, from 0.75 percent, at a meeting on May 2.

The euro gained 1.6 percent in the past month against nine developed-market currencies monitored by Bloomberg Correlation-Weighted Indexes. The dollar fell 0.8 percent, and the yen tumbled 4.8 percent.

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