Dollar Advances Against Yen on Economic Growth; Rupee Plunges

The dollar advanced to a two-week high against the yen as initial jobless claims over the past month in the U.S. fell to a five-year low, boosting the case for the Federal Reserve to reduce stimulus.

The U.S. currency gained as housing prices and a gauge of leading indicators climbed a day after minutes of the Federal Open Market Committee’s last meeting showed most members were “broadly comfortable” with the plan to trim stimulus this year. India’s rupee slumped to a record and Malaysia’s ringgit fell to a three-year low. Sweden’s krona strengthened versus most major counterparts as the unemployment rate declined.

“The minutes indicated nearly all the FOMC members were backing Bernanke’s plan of tapering -- as it stands right now, it’s going forward,” Robert Lynch, a currency strategist at HSBC Holdings Plc in New York, said in a phone interview. “That’s given some support for the dollar.”

The dollar rose 1.1 percent to 98.72 yen at 5 p.m. in New York after advancing to 98.81, the strongest level since Aug. 5. The U.S. currency was little changed at $1.3356 per euro after gaining as much as 0.4 percent. The euro climbed 1.1 percent to 131.84 yen after appreciating to 131.89 yen, the highest since Aug. 2.

The Bloomberg U.S. Dollar Index advanced 0.2 percent to 1,028.31 after rising to 1,031.37, the highest since Aug. 2.

Rupee, Ringgit

Global funds have cut their holdings of Indian debt by $10.1 billion since Fed Chairman Ben S. Bernanke first flagged the tapering on May 22, leaving the rupee vulnerable to the nation’s current-account deficit.

The rupee slid 0.9 percent to 64.6300 per dollar after weakening to a record 65.56. The currency may drop to 68 or even 70 by next week, Westpac Banking Corp. in Singapore predicts.

Malaysia’s ringgit slumped 0.9 percent to 3.3155 per dollar after depreciating to 3.3248, the weakest since June 2010.

“The market was extremely nervous and stressed in emerging markets,” Sebastien Galy, a senior currency strategist at Societe Generale SA, said by phone from New York. “We went through a very severe wave of risk management which has led to volatility much higher, and emerging markets under severe pressure.”

Real, Rand

The real rose as Brazil was set to authorize price increases for diesel and gasoline, O Estado de S. Paulo reported today, without saying where it got the information. The real appreciated as much as 1.4 percent before adding 0.7 percent to 2.4362 per U.S. dollar after tumbling 2.5 percent yesterday to the weakest since December 2008.

The rand climbed even as two South African labor unions said their members may strike after wage talks with gold producers remained stalled. The currency rose 1 percent to 10.2816 per dollar after plunging 2.3 percent yesterday, the most since April.

The euro extended its advance against the yen after London-based Markit Economics said an index of services in the 17-nation region rose to 51 this month from 49.8 in July. A composite gauge of services and manufacturing climbed to 51.7 from 50.5. Readings above 50 indicates expansion.

The krona rose against most of its major counterparts after Statistics Sweden said the seasonally adjusted unemployment rate dropped to 7.8 percent in July from a revised 7.9 percent the previous month. The Swedish currency gained 0.8 percent to 8.7081 per euro and strengthened 0.4 percent to 6.1074 per dollar.

‘On Track’

The number of U.S. claims for unemployment insurance in the month ended Aug. 17 declined to 330,500 a week on average, the least since November 2007, a Labor Department report showed today in Washington. Compared with a week earlier, claims rose by 13,000 to 336,000, in line with the median forecast of 48 economists surveyed by Bloomberg.

An index of U.S. house prices climbed 0.7 percent in June from a revised 0.8 percent gain the previous month, according to the Federal Housing Finance Agency, and the Conference Board’s index of leading economic indicators increased 0.6 percent in July.

“We think tapering is on track -- we haven’t seen any deterioration to show otherwise,” Eric Viloria, senior currency strategist for Gain Capital Group LLC in New York, said in a telephone interview. “We’re seeing a decline in the euro because it’s being driven more by these dollar factors and by the expectations of tapering.”

Fed’s View

The FOMC will reduce its monthly purchases of $85 billion in bonds at its next meeting on Sept. 17-18, according to 65 percent economists in an Aug. 9-13 Bloomberg survey. The median estimate is a cut to $75 billion each month.

Minutes from the Federal Open Market Committee’s July 30-31 gathering, released yesterday, showed “almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan.”

Trading in over-the-counter foreign-exchange options totaled $24 billion, compared with $21 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-Mexican peso exchange rate amounted to $3.5 billion, the largest share of trades at 14 percent. Options on the U.S. dollar-yen rate totaled $2.9 billion, or 12 percent.

Dollar-peso options trading was 138 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Greenback-yen options trading was 59 percent less than average.

The dollar appreciated 5.1 percent this year, the best performer after the euro among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 6.6 percent, while the yen slumped 8.9 percent.

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