Dollar Strengthens as Data Fuel Bets on Fed Tapering; Yen Slides

The dollar rose versus 13 of its 16 most-traded peers as better-than-forecast data on U.S. jobless claims and regional manufacturing added to bets the Federal Reserve will cut monetary stimulus as the economy improves.

The yen fell for a second day versus the dollar on bets Group-of-20 finance ministers and central bankers meeting this week will endorse Bank of Japan monetary easing designed to stoke inflation to 2 percent. The euro pared its loss versus the greenback after a censure move against Portugal’s government was defeated in parliament. Fed Chairman Ben S. Bernanke said the central bank’s bond buying may be halted around mid-2014.

“The market is still bullish the dollar,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co. in New York, said in a telephone interview. “But people may still price in greater doubt about the timing of Fed tapering. There might still be an adjustment of expectations around Fed policy.”

The dollar rose 0.8 percent to 100.43 yen at 5 p.m. New York time and touched 100.66, the highest level since July 10. It appreciated as much as 0.4 percent to $1.3067 per euro in a second daily advance before trading at $1.3109, up 0.1 percent. The 17-nation currency gained 0.7 percent to 131.65 yen and reached 131.89, the strongest since May 31.

The dollar remained higher after Moody’s Investors Service revised the U.S.’s Aaa credit-rating outlook to stable from negative, saying in a statement the government’s debt trajectory has stabilized. Moody’s affirmed the top rating.

Aussie, Real

JPMorgan Chase & Co.’s Global FX Volatility Index, a measure of currency fluctuations, declined to 9.96 percent, the lowest on a closing basis since May 30. It touched a one-year intraday high of 11.96 percent on June 24.

Australia’s dollar declined versus most major counterparts after the nation’s business-confidence index for the next three months dropped to negative 1 in the second quarter, from 2 in the previous period. The data added to the case for an interest-rate cut next month by the central bank. The currency weakened

0.7 percent to 91.70 U.S. cents after earlier falling 1.1 percent, the most in almost a week.

The Brazilian real rose against most emerging-market peers as risk appetite increased and global stocks advanced. It was little changed versus the dollar at 2.2276 to the U.S. currency.

The Standard & Poor’s 500 Index increased 0.5 percent, and the MSCI World Index added 0.5 percent.

The greenback extended its gain versus the yen after the Philadelphia Fed’s general economic index increased to 19.8 in July, more than double the forecast of 8 in a Bloomberg survey, from 12.5 the prior month. Readings greater than zero signal expansion in the region.

Jobless Claims

Claims for jobless benefits in the U.S. dropped last week by 24,000 to 334,000, the fewest since early May, from a revised 358,000 the prior week, Labor Department data showed today. A Bloomberg survey projected 345,000.

The Fed buys $85 billion of Treasuries and mortgage debt each month as part of its third round of quantitative-easing stimulus to cap borrowing costs, a program that tends to debase the currency. Bernanke said last month the purchases may slow this year and stop in the middle of next year if economic growth meets policy makers’ projections.

Bernanke told the Senate Banking Committee today it was “way too early to make any judgment” as to whether tapering will start in September. He delivered his semi-annual report on monetary policy to the panel after telling the House Financial Services Committee yesterday he’ll take a wait-and-see stance on stimulus. The Federal Open Market Committee wants to assure the U.S. economy and labor markets have sufficient momentum before reducing asset purchases.

View Unchanged

“People haven’t really changed their view of when tapering is going to occur,” Dan Dorrow, head of research at Faros Trading LLC in Stamford, Connecticut, said in a telephone interview. “The Fed has said we really need to have cumulative data. We’re in Bernanke mode right now.”

The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.2 percent to 1,034.62 after increasing 0.2 percent yesterday.

The yen weakened for the fourth time in five days against the greenback after Russian Deputy Finance Minister Sergei Storchak said the G-20 probably won’t call for a tapering of stimulus in nations including Japan.

BOJ Purchases

The BOJ doubled monthly bond purchases to more than 7 trillion yen ($70 billion) in April after Prime Minister Shinzo Abe urged the central bank to take steps to overcome deflation.

The yen fell 23 percent in the past year, the biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 9.2 percent in the best performance, and the dollar rose 1.5 percent.

The euro touched a seven-week high versus the yen as Greek lawmakers passed a bill that put thousands of state workers on notice for possible dismissal, clearing the way for the country’s next bailout installment.

The shared currency trimmed its loss versus the dollar after a censure motion by the Green Party against the government was rejected by lawmakers. Portugal’s political parties held a fifth day of talks to hammer out a deal on how to meet the austerity terms demanded in a European Union-led bailout.

Trading in over-the-counter foreign-exchange options totaled $30 billion, compared with $31 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 $7 billion, the largest share of trades at 23 percent. Euro-dollar options totaled $2 billion, or 7 percent.

Dollar-yen options trading was 22 percent below the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 53 percent lower than average.

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