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Dollar Weakens Amid Bets Fed Will Maintain Stimulus

May 3, 2013
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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.

Mexico’s peso gained versus all of its 16 most-traded peers amid the stronger-than-expected economic data from the nation’s biggest trade partner. The currency climbed 0.9 percent to 12.0645 per dollar.

Krone Weakens

Norway’s krone fell against most of its major counterparts after a report showed the nation’s manufacturing contracted more than economists forecast as production slumped. The purchasing managers’ index fell to 48.9 from a revised 50 in March, Danske Bank A/S said. Readings below 50 signal a contraction. Economists surveyed by Bloomberg predicted a decline to 49.8.

The Norwegian currency depreciated 0.5 percent to 7.6141 per euro and slipped 0.1 percent to 5.8089 to the dollar.

U.S. payrolls expanded by 165,000 workers last month following a revised 138,000 increase in March that was larger than first estimated, Labor Department figures showed today in Washington. A Bloomberg survey projected a gain of 140,000.

The unemployment rate dropped to 7.5 percent, the lowest level since December 2008, from 7.6 percent in March.

The dollar extended its decline as data showed service industries in the U.S. expanded in April at the slowest pace in nine months.

The Institute for Supply Management’s non-manufacturing index fell to 53.1 last month, from 54.4 in March, the Tempe, Arizona-based group reported. A Bloomberg survey called for a decline to 54. A reading above 50 indicates expansion in the industries that make up almost 90 percent of the economy.

Fed Meeting

The Dollar Index fell on May 1 for a fifth day, the longest losing streak this year, after the Fed said following a two-day policy meeting it will maintain its bond buying at a pace of $85 billion a month. The central bank said it’s prepared to raise or lower the amount as economic conditions evolve.

The euro fell yesterday against the greenback after European Central Bank cut its benchmark rate by a quarter- percentage point to 0.5 percent at a meeting yesterday in Bratislava, Slovakia. Policy makers kept the deposit rate, which banks receive when they park cash with the ECB, at zero.

Asked by reporters after the meeting ended if further action might include a negative deposit rate, ECB President Draghi said the central bank was "technically ready."

The shared currency will climb to the strongest since February against the dollar, according to BNP Paribas SA analysts including head of currency strategy Steven Saywell.

"We are comfortable with our long euro-dollar recommendation targeting $1.34," the analysts wrote in an e- mailed report. A long position is a bet an asset will rise. BNP economists forecast the ECB will cut its main refinancing rate again in July, according to the report.

 

--With assistance from Cecile Gutscher in Toronto. Editors: Greg Storey, Paul Cox

 

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

 

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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