Dollar at Almost 2-Year Low as U.S. Confidence Sags: Peso Climbs

The dollar traded at almost the weakest level in two years versus the euro after U.S. consumer sentiment fell to a 10-month low, adding to bets the economy is struggling and the Federal Reserve will delay cutting stimulus.

The greenback slid for a second week versus the yen as orders fell for U.S. durable goods other than transportation equipment. The Fed, which meets next week, will put off slowing bond purchases until March, economists forecast. New Zealand’s dollar sank after the central bank signaled hesitation to raise interest rates. Mexico’s peso climbed as policy makers indicated a rate cut will be the last for a while.

“Tapering is a dirty word that won’t be acted upon for perhaps nine to 12 months,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “The numbers today by and large reinforce my message.”

The dollar depreciated as much as 0.2 percent to $1.3832 per euro, the weakest since November 2011, before trading little changed at $1.3802 at 5 p.m. New York time. It gained 0.1 percent to 97.42 yen after touching 96.94, the lowest since Oct. 9. The dollar lost 0.8 percent this week versus the euro and 0.3 percent against the yen. The euro rose 0.2 percent to 134.46 yen today, gaining 0.5 percent on the week.

Euro Rally

The euro has climbed to its strongest level on a trade-weighted basis since August 2011, according to Deutsche Bank AG’s EUR Trade-Weighted Index.

The currency’s strength “is now significant enough to potentially impact the ECB’s outlook for inflation, and it may comment on the euro in this context,” Jens Nordvig, managing director of currency research at Nomura Holdings Inc., Japan’s biggest brokerage, wrote in a note, referring to the European Central Bank. “An actual policy response -- beyond verbiage -- seems unlikely in the near-term.”

Nomura recommended investors bet on the euro appreciating against the yen. The ECB has kept its benchmark interest rate at 0.5 percent since May.

Futures traders increased bets earlier this month to the most since May 2011 that the euro would gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The data was delayed by the government’s partial shutdown this month.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so-called net longs -- was 68,276 as of Oct. 1, the widest in more than two years, compared with net longs of 65,844 a week earlier.

Relative Strength

Europe’s shared currency may have gained too much, too fast against the greenback, a technical indicator signaled for a fourth straight day. The euro’s 14-day relative strength index was at 74, above the 70 level some traders see as a sign a drop may be imminent. It was the longest since September 2012.

Malaysia’s currency rallied against the majority of its 31 most-traded peers as Prime Minister Najib Razak took steps for a shift toward fiscal prudence, scrapping sugar subsidies and unveiling plans for a consumption tax in 2015.

The ringgit appreciated 0.1 percent to 3.1570 per dollar in the third day of gains.

Mexico’s peso gained as the nation’s central bank cut the key interest rate and said further reductions “aren’t recommended in the foreseeable future.” Policy makers reduced the rate a quarter-percentage point to 3.5 percent, as forecast in a Bloomberg survey, to help revive the economy. The peso strengthened 0.7 percent to 12.8812 per greenback.

Brazil’s real gained 0.7 percent to 2.1872 to the dollar after falling yesterday to the weakest level since Oct. 9.

Fed Stimulus

The Fed will delay tapering its $85 billion of monthly bond buying until its March 18-19 meeting, according to economists surveyed by Bloomberg on Oct. 17-18. A poll last month forecast the first reduction would be in December.

The central bank, which meets Oct. 29-30, buys Treasuries and mortgage-backed securities to push down long-term yields and spur growth, a move that tends to debase the greenback. It unexpectedly refrained in September from slowing the pace of its buying, saying it wanted more evidence of an economic recovery.

The dollar lost 1.1 percent in the past month, making it the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the Canadian dollar, which slid 2.6 percent. The euro strengthened 1.1 percent, while the yen was little changed.

Kiwi Drops

The New Zealand dollar weakened after central bank Governor Graeme Wheeler said increasing interest rates “would put upward pressure on the exchange rate and damage our traded-goods sector.” The kiwi sank 0.9 percent to 82.80 U.S. cents.

The Thomson Reuters/University of Michigan final U.S. consumer sentiment index for October decreased to 73.2, the lowest since December, from 77.5 the prior month. The median estimate in a Bloomberg survey called for a decline to 75 compared with a preliminary reading of 75.2.

Orders for U.S. durable goods excluding transportation equipment, where demand is often volatile, fell 0.1 percent in September after a revised 0.4 percent decrease in August, the Commerce Department said today in Washington. Total bookings for goods meant to last at least three years increased 3.7 percent.

“The data was soft, which argues for a weaker dollar,” said Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York.

Trading in over-the-counter foreign-exchange options totaled $41 billion, versus $48 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and monitored by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $8 billion, the largest share of trades at 19 percent. Options on the euro-dollar rate totaled $7.4 billion, or 18 percent.

Dollar-yen options trading was 4 percent more than the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 52 percent above average.

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