Yen Rallies Past 100 Per Dollar on Factory Data

The yen strengthened beyond 100 versus the dollar for the first time in almost a month as U.S. manufacturing unexpectedly contracted in May, dimming speculation that the Federal Reserve will reduce stimulus.

The Dollar Index fell the most since January as the Institute for Supply Management’s factory index contracted in May at the fastest pace in four years. The euro gained after a report showed manufacturing in the 17-nation currency bloc contracted at a slower pace than initially estimated in May. Turkey’s lira slid after a weekend of violent protests.

“We had that weak ISM number is morning and that really weighed on the dollar and on what that means for Fed expectations going forward as well as the overall outlook for the economy,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said in a telephone interview. “In the long-term, the yen could continue to weaken against the dollar. This is that pullback that markets have been anticipating because the yen weakness was a bit overdone. It was extreme.”

Japan’s currency rose 0.9 percent to 99.53 per dollar at 5 p.m. in New York, reaching the strongest level since May 9. The euro added 0.6 percent $1.3076, touching the strongest level since May 9. Europe’s shared currency weakened 0.4 percent to 130.15 yen.

Lira Weakness

The Turkish lira weakened against the greenback on concern days of protest against Prime Minister Recep Tayyip Erdogan will undermine his efforts to overhaul the political system.

The lira depreciated 0.4 percent to 1.8828 per dollar.

South Africa’s rand appreciated at least 0.2 percent against all 16 of its major peers after a report showed manufacturing unexpectedly expanded in May. The gauge fell to 50.4 in May, from 50.5 in April. The median estimate of economists in Bloomberg survey was for a decline to 49.9.

The currency of Africa’s biggest economy added 2.7 percent to 9.8150 per dollar from May 31, when it touched 10.2847, the weakest level since March 2009.

Trading in over-the-counter foreign-exchange options totaled $39 billion, compared with $39 billion on May 31, 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 was $9.1 billion, the largest share of trades at 24 percent. Mexican peso-dollar options were the second most-actively traded, at $4.9 billion, or 13 percent.

Options Data

Dollar-yen options trading was 48 percent more than the average for the past five Mondays at a similar time in the day. Peso-dollar options trading was more than 600 percent above average.

Japan’s currency has slumped 13 percent this year against the dollar as Prime Minister Shinzo Abe pledged to stem 15 years of deflation and the Bank of Japan doubled monthly bond purchases. The yen’s crossing the 100-versus-the-greenback threshold on May 9 was the first time since April 2009.

The yen has fallen 3.2 percent since April 4 when BOJ Governor Haruhiko Kuroda outstripped economist forecasts by pledging to double monthly bond purchases and scoop up longer-term debt to reach a 2 percent annual inflation goal.

“With dollar-yen as close to that important psychological level of 100, we did see the breakthrough there and some stops, people selling the dollar might have exacerbated the move,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. A stop is an order that is triggered when prices reach a pre-set level.

Manufacturing Gauge

The euro-area manufacturing index increased to 48.3 last month from 46.7 in April, London-based Markit Economics said today. That’s above an initial estimate of 47.8 on May 23. It has been below 50, indicating contraction, since July 2011.

“There are a few signs of a possible stabilization,” European Central Bank President Mario Draghi said in a speech in Shanghai today, according to text provided by the Frankfurt-based ECB. “Our baseline scenario continues to be one of a very gradual recovery starting in the latter part of this year.”

After reducing the ECB’s benchmark interest rate to a record-low 0.5 percent last month, Draghi signaled he’s prepared to cut again if economic data worsen. The ECB’s Governing Council will leave borrowing costs unchanged when it meets on June 6, according to 56 of 58 economists in a Bloomberg survey.

Annual Pattern

The euro appreciated 3 percent this year among a basket of 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen slumped 10.4 percent, the biggest drop, and the dollar rose 4 percent, the largest advance.

U.S. nonfarm payrolls swelled by 165,000 jobs in April, more than forecast, and the unemployment rate unexpectedly fell to 7.5 percent, the Labor Department reported last month. It will say June 7 that employers added 167,000 workers in May, economists forecast in a Bloomberg survey.

The Fed is buying $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing stimulus strategy, which tends to debase the dollar.

Fed Chairman Ben S. Bernanke told Congress on May 22 the U.S. central bank could decide at its next few meetings to taper purchases if it’s confident of sustained gains in the economy. At the same time, he said a premature tightening of monetary policy might imperil the economic recovery.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, fell 0.9 percent to 82.646, after declining as much as 1.1 percent.

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