Dollar Index Sinks to Two-Month Low Before Fed; Pound AdvancesJoseph Ciolli
The Dollar Index fell to a two-month low amid speculation the Federal Reserve will announce after a two-day policy meeting that it will maintain its bond purchases to spur economic growth.
The gauge fell for a fifth day, the longest stretch this year, as ADP Research Institute said America’s private employers added fewer jobs than forecast. The Fed buys $85 billion of bonds a month under its quantitative-easing strategy to put downward pressure on borrowing costs. The pound rose after U.K. manufacturing shrank less than estimated in April. Australia’s dollar slid after China’s manufacturing growth slowed.
“The dollar weakness is just positioning ahead of the Fed numbers,” Melinda Burgess, a currency strategist at Royal Bank of Scotland Group Plc in London, said in a telephone interview. “You had the ADP report as well, which came in below expectations, which may be having an impact on the dollar. The market is shifting their expectations around Fed policies, given the disappointments we’ve seen in U.S. data lately.”
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.2 percent to 81.556 at 12:44 p.m. in New York. It reached 81.331, the lowest since Feb. 25.
The greenback declined 0.2 percent to $1.3196 per euro and touched $1.3243, the weakest level since Feb. 25. The U.S. currency fell 0.2 percent to 97.26 yen. The euro was little changed at 128.31 yen after falling 0.4 percent earlier.
The dollar pared losses versus the euro after the Institute for Supply Management’s manufacturing index fell to 50.7 in April, from March’s 51.3. A Bloomberg survey forecast 50.5. A reading of 50 is the line between expansion and contraction.
Trading in over-the-counter foreign-exchange options totaled $15 billion, compared with $24 billion yesterday, 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 $3.1 billion, the largest share of trades at 20 percent. Euro-dollar options were the second most actively traded, at $2.5 billion, or 17 percent.
Dollar-yen options trading was 70 percent below the average for the past five Wednesdays at a similar time in the day, and euro-dollar options trading was 57 percent below, according to Bloomberg analysis.
Australia’s dollar slid against the majority of its 16 most-traded peers after a Chinese government report showed a manufacturing purchasing-managers index declined to 50.6 in April from 50.9 the previous month. China is Australia’s largest trading partner.
The Aussie dropped 0.8 percent to $1.0285 after rising yesterday to $1.0385, the highest level since April 17.
The Mexican peso declined versus most major peers amid speculation the country’s central bank will cut borrowing costs. Governor Agustin Carstens said April 29 policy makers would consider lowering rates for a second time this year if the annual inflation rate fell below 4 percent.
The peso weakened 0.8 percent to 12.2339 per dollar.
The Federal Open Market Committee will release a statement at 2 p.m. after its meeting ends in Washington. None of the 47 economists in the Bloomberg News survey taken April 25-29 forecast a decision today to change the pace of purchases.
“Into the Fed meeting, I think that we’re going to see further U.S. dollar selling pressure,” said Hans-Guenter Redeker, head of global foreign-exchange strategy at Morgan Stanley in London. “The Fed is going to signal that it’s going to stay accommodative, that it’s going to reconfirm the link between unlimited quantitative easing and the state of the economy.”
The U.S. currency may decline below 94 yen within the next three weeks, Redeker said.
American companies added 119,000 workers to payrolls last month, figures from Roseland, New Jersey-based ADP showed today. The median forecast of 37 economists surveyed by Bloomberg projected an advance of 150,000.
U.S. nonfarm payrolls increased by 145,000 workers last month after gaining 88,000 in March, a Bloomberg survey showed before the Labor Department reports the data May 3.
The dollar weakened 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-market currencies. The euro gained 1.9 percent, the best performance, and the yen tumbled 5.6 percent.
Markets in the U.K., Denmark and Ireland were open today, while most others in Europe and Asia were closed for holidays.
The pound strengthened to an 11-week high versus the dollar as U.K. manufacturing data weakened the case for more central-bank stimulus that debases the currency.
The gauge of factory output climbed to 49.8 from a revised 48.6 in March, Markit and the Chartered Institute of Purchasing and Supply said in London. Economists forecast a reading of 48.5, according to a Bloomberg survey.
The pound climbed to as high as $1.5596, the strongest level since Feb. 13, before trading at $1.5579, up 0.3 percent. The U.K. currency rose 0.1 percent to 84.68 pence per euro.
Europe’s shared currency rose versus most major peers even as economists forecast the European Central Bank will cut its main refinancing rate to a record-low 0.5 percent when policy makers meet tomorrow.
“The ECB risks are biased to further euro upside as any non-conventional easing in addition to the refi rate cut is likely to be more positive than negative for the euro,” BNP Paribas SA strategists Kiran Kowshik and Jasmine Poh wrote today in a note to clients.
The strategists recommend buying the euro with a target of $1.34. The currency last traded at that level on Feb. 20.