Dollar Holding Declines as Fed May Decide to Maintain Stimulus

The dollar held declines from last week against most major peers as U.S. economic data failed to convince investors the Federal Reserve will decide to reduce stimulus by slowing its bond-buying program.

The yen rose to a one-month high against the greenback. New Zealand’s dollar was little changed after surging last week when central-bank Governor Graeme Wheeler signaled he may raise interest rates next year. The Federal Open Market Committee starts a two-day policy meeting tomorrow. Data showed sales of U.S. new homes rose last month, while existing-home sales fell.

“We saw mixed news on the U.S. economy, and that further clouded the outlook for Fed taper plans,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said July 26 by telephone from Washington. “The market still hasn’t quite received that knock-out punch for a September taper.”

The yen reached 97.92 per dollar earlier today, the strongest since June 27, and traded at 98.15 as of 7:07 a.m. in Tokyo. Japan’s currency jumped 2.5 percent to 98.21 yen last week in New York, the most since the five days ended June 14.

The U.S. currency was unchanged at $1.3279 per euro after declining 1 percent in the five days ended July 26, when it touched $1.3297, its weakest level since June 20. Europe’s shared currency was little changed at 130.32 yen after weakening 1.4 percent last week.

The Bloomberg Dollar Index fell for a third week, decreasing 1 percent to 1,022.85. The gauge monitors the greenback against 10 other major currencies.

Volatility Lessens

A measure of price fluctuations among Group-of-Seven currencies fell for a fifth week, the longest stretch in a year. JPMorgan Chase & Co.’s G-7 Volatility Index declined to 9.47 percent after touching 9.11 percent on July 24, the lowest intraday level since May 9.

New Zealand’s dollar was the biggest winner last week among the greenback’s major counterparts, after the yen, with a 2.1 percent gain. The Mexican peso was the biggest loser, sliding 1.1 percent, while Brazil’s real dropped 0.4 percent in the second-worst performance.

The kiwi, as the South Pacific currency is nicknamed, climbed after the Reserve Bank of New Zealand said the pace of future interest-rate increases will depend on the impact on prices of the nation’s growing housing, while reiterating it will keep borrowing costs at a record-low 2.5 percent in 2013.

The “Reserve Bank has told us that they’re going to tighten explicitly, no ifs or buts,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “The pressure from the markets would be to the upside for the kiwi.”

The kiwi bought 80.81 U.S. cents today, from 80.86 U.S. cents on July 26. It gained 1.9 percent on July 25, the most in a day on a closing basis since June 2012.

Seeking Safety

The yen climbed last week as investors sought safety as Japanese stocks posted the biggest weekly decline since June 7 amid disappointing corporate earnings. The Topix Index of equities slid 3.7 percent.

The yen has been the biggest loser this year among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, dropping 9.4 percent as officials pushed to stem deflation and spur growth. The euro has been the best performer, rallying 4.9 percent, and the U.S. currency has advanced 4.1 percent.

The dollar dropped last week on speculation the Fed won’t be quick to taper its bond buying under the quantitative-easing stimulus strategy, which tends to devalue the currency. The central bank purchases $85 billion of Treasuries and mortgage debt each month. It has held the benchmark interest-rate target at zero to 0.25 percent since 2008 to support the economy.

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