Dollar Falls Most Since October on Manufacturing, Jobs Weakness

The dollar had the biggest weekly decline since October as economic reports from manufacturing industries to payrolls showed mixed results, underscoring the economy’s uneven recovery.

Emerging-markets currencies rebounded after central banks from Turkey to India raised interest rates to stem outflows, while the yen -- a favored haven -- fell versus all of its 16 major peers. The New Zealand dollar rallied on optimism improvements in the jobs market will add to the case for an interest-rate increase as early as next month. Federal Reserve Chairman Janet Yellen will testify before a congressional panel on Feb. 11 as the central bank weighs economic indicators and its plans to scale backs monetary stimulus.

“The economy is moving ahead, but the data appears to be showing some loss of momentum,” said Andrew Wilkinson, the Greenwich, Connecticut-based chief market analyst at Interactive Brokers LLC. “The outlook for the dollar really is becoming muddy again.”

The Bloomberg Dollar Spot Index, which monitors the greenback against 10 major counterparts, fell 0.8 percent this week to 1,023.83 in New York, the biggest drop since Oct. 18.

The U.S. currency slipped 1.1 percent to $1.3635 per euro and rose 0.3 percent to 102.30 yen. The shared currency added 1.4 percent to 139.53 yen.

Futures Positions

Hedge funds and other large speculators decreased their bets that the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a decline in the yen compared with those on a gain -- so-called net shorts -- was 76,829 on Feb. 4, compared with net shorts of 86,192 a week earlier.

Poland’s zloty rallied 2.9 percent to 3.0623 per dollar on speculation the Fed may slow the pace of reduction in asset purchases even after U.S. employers added 113,000 jobs in January, the Labor Department reported yesterday. The jobs gain was less than the median forecast in a Bloomberg News survey for a 180,000 advance.

A report Feb. 6 showed the Institute for Supply Management’s factory index decreased to 51.3 in January from 56.5 the prior month.

Hungary’s forint rose 2.6 percent to 225.69 while Turkey’s lira rose 1.7 percent to 2.2193.

Emerging Markets

“The selloff is clearly overdone, and there’s a need to distinguish the good and bad ones within the EM bloc,” said Roy Teo, a Singapore-based currency strategist at ABN Amro Bank NV. “The recovery remains fragile given the headwinds from Fed tapering concerns.”

A Bloomberg customized gauge tracking 20 emerging-market currencies rose 0.7 percent this week. It has fallen 2.3 percent this year.

JPMorgan Chase & Co.’s volatility index for the currencies of Group of Seven nations fell to 7.87 percentage points, the lowest since Jan. 22. The gauge reached 8.74 percentage points on Feb. 3.

The euro gained versus the dollar as the European Central Bank refrained after its Feb. 6 policy meeting from introducing additional stimulus that tends to debase the currency. ECB President Mario Draghi said officials could take action to counter low inflation when more data are available. The ECB will publish quarterly macro-economic forecasts next month.

ECB Moves

“Draghi is pushing back on anything that points to the ECB taking more action,” said Gavin Friend, a foreign-exchange strategist at National Australia Bank Ltd. in London. “Draghi says further analysis on the medium-term price stability outlook will be available next month. The euro is up as some will see this as a signal any policy action will have to wait until then.”

The shared currency pared gains as the European Court of Justice was asked to rule on a claim that the region’s central bank overstepped its powers in announcing the Outright Monetary Transactions in September 2012. The still-unused program allows the ECB to buy bonds of indebted nations and has been credited with helping to calm record borrowing costs.

The kiwi led gains among its 16 major peers this week as New Zealand employers hired workers at almost double the pace economists’ forecast in the three months through December,

Pressure on wages and inflation may prompt Reserve Bank Governor Graeme Wheeler to start raising rates from a record-low 2.5 percent as early as March. Last month, he said borrowing costs will need to rise “soon” as domestic demand picks up and inflation accelerates.

The kiwi jumped 2.6 percent this week to 82.95 U.S. cents.

Fed Policy

The Fed announced on Jan. 29 that it will trim its monthly bond buying by $10 billion to $65 billion, sticking to its plan for a gradual withdrawal from the unprecedented easing policy.

The central bank is forecast to continue reducing purchases by $10 billion at this meeting and each one following to end the stimulus program this year, according to analysts in a Jan. 10 Bloomberg News survey.

The dollar gained 0.8 percent this year among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen strengthened 4 percent, the best performer, and the euro slipped 0.1 percent.

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