Dollar Gains Versus Major Peers as Economic Data Backs Tapering

The dollar registered its biggest weekly advance in more than a month against the yen as gains in new-home construction and worker productivity added to signs the world’s biggest economy is improving.

The U.S. currency climbed versus 13 of its 16 major counterparts as growth data fueled speculation the Federal Reserve will start to reduce its unprecedented monetary stimulus. Dollar gains were limited as bond yields rose to the highest level in more than two years and stocks fell. India’s rupee slid to a record low amid concern the nation’s current-account deficit will keep widening.

“The housing data today doesn’t change any of the views that the Federal Reserve will likely taper its asset purchases in September,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “We expect a broad-based appreciation of the U.S. dollar between now and the end of the year.”

The dollar rose 0.2 percent to 97.53 yen at 5 p.m. in New York, with its 1.4 percent week gain the most since the period ended July 5. The U.S. currency added 0.1 percent to $1.3329 per euro after appreciating to $1.3206 yesterday, the strongest level since Aug. 2. The yen was little changed at 130.00 per euro.

The Bloomberg U.S. Dollar Index added 0.2 percent to 1,022.06 and climbed 0.5 percent this week.

Rupee, Real

The rupee extended its all-time low after the Reserve Bank of India boosted efforts this week to stem its slide by cutting the amount local companies can invest overseas without seeking approval to 100 percent of their net worth, from 400 percent. The rupee declined 0.3 percent to 61.66 per dollar after weakening to a record 62.005 and slumped 12 percent this year.

Brazil’s real fell versus all 16 of its major peers as concern the Fed will reduce stimulus overshadowed the central bank’s plan to begin rolling over more than $5 billion in currency swap contracts today. The currency depreciated 2.2 percent to 2.3925 per dollar after touching 2.3983, the lowest level on a closing basis since March 2009.

The rupiah extended yesterday’s loss and touched a four-year low after Indonesia’s foreign-currency reserves dropped to the least since 2010 before data today that may show the current account deficit widened to a record. The Indonesian currency reached 10,435, the weakest level since June 2009.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $20 billion, compared with $28 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 the trades at 16 percent, trading at 47 percent less than average for the past five Fridays at a similar time in the day. Pound-dollar, the second most-traded exchange rate, amounted to $3.1 billion, a 15 percent share and up 134 percent on average.

Treasury 10-year yields jumped 25 basis points this week and reached 2.86 percent today, the highest level since July 2011. The Standard & Poor’s 500 Index of stocks fell 0.3 percent today and 2.1 percent this week, the most since June.

“With bond yields higher and equities lower, it means that people are selling these dollar-denominated assets,” said Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York. “In the longer term, tapering from the Fed and the diverging direction of monetary policy across the major economies is something that could be a positive for the dollar.”

Economic Indicators

Housing starts climbed 5.9 percent to an 896,000 annualized rate, from a revised 846,000 pace in June that was higher than previously reported, according figures from the Commerce Department. That compared with a median estimate of 82 economists surveyed by Bloomberg for a 900,000 rate.

The measure of employee output per hour increased at a 0.9 percent annualized rate, after a 1.7 percent decline in the prior three months, a Labor Department report showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 0.6 percent advance.

Separate reports this week showed that applications for unemployment insurance declined to the fewest since October 2007, and the cost of living in the U.S. rose in July for a third month.

‘Very Encouraging’

Fed Chairman Ben S. Bernanke will reduce the central bank’s $85 billion of monthly bond purchases next month, according to 65 percent of economists surveyed by Bloomberg. The Federal Open Market Committee’s first step may be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the survey conducted Aug. 9-13.

“Even though the Fed has said tapering is not tightening, it just feels like yesterday’s data was a little better, and CPI earlier in the week was a little higher,” said Brian Kim, a currency strategist at RBS Securities Inc. in Stamford, Connecticut. “So people are saying ’OK, there’s tapering.’”

The dollar has appreciated 3.9 percent this year, the best performer behind the euro among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 5.1 percent, while the yen tumbled 8.8 percent.

Before it's here, it's on the Bloomberg Terminal.