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Dollar Weakens Amid Bets Fed Will Maintain Stimulus

May 3, 2013
old money dollar

May 3 (Bloomberg) -- The dollar dropped against most of its major counterparts as a report showing the U.S. added more jobs than forecast in April failed to deter investor expectations the Federal Reserve will sustain monetary stimulus.

The greenback reversed a brief gain against the euro as America’s unemployment rate fell to a four-year low. The Federal Open Market Committee maintained its commitment this week to buying assets under the quantitative-easing stimulus strategy until there’s significant improvement in the labor market. The yen slid against all its major peers as investors left the haven of Japan’s currency while seeking higher-returning assets.

"The initial reaction was that it was a great number, but then there was a realization that it might not be enough to get things going in terms of Fed tapering," Brian Kim, a foreign- exchange strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview.

The greenback weakened 0.4 percent to $1.3117 at 4:19 p.m. New York time after gaining as much as 0.2 percent. It fell 0.7 percent this week. The dollar appreciated 1.1 percent to 99.03 yen today, rising as much as 1.4 percent, the most since April 19, and trading above 99 yen for the first time in a week. The Japanese currency lost 1.5 percent to 129.91 per euro.

The Dollar Index declined 0.2 percent to 82.123 after gaining 0.4 percent to 82.517, the highest since April 26. It dropped on May 1 to a two-month low of 81.331. The gauge lost 0.5 percent this week.

Net Bets

Futures traders decreased their bets that the yen will decline against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on an increase -- so-called net shorts -- was 71,127 on April 30, compared with net shorts of 79,730 a week earlier.

Net-short bets that the euro will fall against the dollar declined to 30,149 as of April 30, from 34,275 a week earlier, CFTC figures showed.

The yen sank versus the greenback as U.S. Treasury yields climbed. Ten-year note yields rose as much as 12 basis points, or 0.12 percentage point, to 1.75 percent after falling to 1.61 percent on May 1, the least since December. The gap with comparable Japanese government bond yields widened as much as 1.18 percentage points, the most in three weeks, boosting the dollar’s allure over the yen.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $29 billion, compared with $22 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 $12 billion, the largest share of trades at 40 percent. U.S. dollar-Canada dollar options were the second most actively traded, at $3.3 billion, or 11 percent, and Euro-dollar options were the third most actively traded, at $2.4 billion, or 8 percent.

U.S.-Canada options trading was 315 percent above the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis.

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