The dollar fell (NYBOT:DXU13) against the majority of its 16 most-traded peers after an unexpected slump in a regional manufacturing index bolstered the argument for the Federal Reserve to put off winding down its bond-buying program.
The yen reversed losses (FOREX:USDJPY) versus the dollar after U.S. housing-price gains trailed forecasts. Data since a July 5 report said U.S. payrolls rose more than forecast have shown housing starts and existing-home sales unexpectedly fell. Fed Chairman Ben S. Bernanke told Congress last week it was “too early” to decide to begin tapering asset purchases. Canada’s dollar climbed after the nation’s retail sales jumped.
“The growth data, aside from employment, have been showing signs of weakness,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview. “There is some focus on the weaker data, and with Bernanke out of the way, squaring up of positions is the name of the game in the near term.”
The dollar declined 0.3% to $1.3226 per euro at 3:16 p.m. New York time. It touched $1.3239, the weakest level since June 21, after gaining 0.2% earlier. The U.S. currency depreciated 0.2% to 99.46 yen after rising 0.5% earlier to 100.18. It. The yen weakened 0.1% to 131.54 per euro.
The European currency extended gains versus the dollar before data tomorrow forecast to show increases this month in manufacturing and services in the 17-nation region.
Hungary’s forint fell versus most major counterparts after the central bank cut its main interest rate for a 12th consecutive month and President Gyorgy Matolcsy said he expects to extend monetary easing. The currency depreciated 0.6% to 295.89 per euro after strengthening 0.5% yesterday.
Canada’s dollar (FOREX:CADUSD) climbed versus its U.S. counterpart after a government report showed Canadian retail sales increased in May at the fastest pace in three years. The currency strengthened 0.5% to C$1.0286 to the greenback.
South Africa’s rand strengthened for a third day, advancing 1.2% to 9.7061 versus the dollar.
JPMorgan Chase & Co.’s G-7 Volatility Index, a measure of currency fluctuations, declined to 9.21% and touched 9.18%, the lowest intraday level since May 9. The gauge has dropped for nine consecutive days, the longest stretch of declines since July 2012. It touched 11.96%, the highest this year, on June 24.
Volatility “has been fading since the beginning of the month, and it’s continuing that process,” Sebastien Galy, a senior foreign-exchange strategist in New York at Societe Generale SA, said in a telephone interview. “It’s been fading for two main reasons. No. 1 is Bernanke trying to push a dovish angle, and No. 2 is a less bearish angle on China.”
The yen weakened against most of its major peers after Chinese news organizations reported Premier Li Keqiang’s government sees 7% growth as the minimum acceptable pace of growth, signaling the nation will act to support the economy if needed.
The dollar erased a gain versus the yen after the Fed bank of Richmond’s factory index slid to negative 11 for July. Readings greater than would zero signal expansion in the region that includes the Carolinas, the District of Columbia, Maryland, Virginia and West Virginia. Economists in a Bloomberg survey projected a reading of 9.
U.S. house prices rose 0.7% in May from April, compared with a 0.8% gain forecast in a Bloomberg survey, Federal Housing Finance Agency figures showed. Other data this month showed housing starts in the U.S. fell in June to the lowest in almost a year, existing-home sales decreased and retail sales rose less than forecast. The Labor Department reported U.S. employers added 195,000 jobs, more than projected.
The Fed buys $85 billion of debt each month as part of its quantitative-easing stimulus to cap borrowing costs, a strategy that typically debases currencies. It has held the benchmark interest-rate target unchanged at between zero and 0.25% since 2008 to support the economy.
A Bloomberg survey showed more economists are predicting the U.S. central bank will trim its monthly bond buying by $20 billion in September.
Bernanke said last week in two days of congressional testimony that the purchases “are by no means on a preset course” and may be reduced more quickly or expanded as economic conditions warrant. He said reducing bond-buying wouldn’t constitute policy-tightening.
“The market is getting used to the idea that tapering is not tightening,” said Jane Foley, senior currency strategist at Rabobank International in London. “The main message is accommodation, and that’s a bearish factor for the dollar.”
The U.S. currency has risen 4.2% this year among 10 developed-market currencies tracked by Bloomberg Correlation- Weighted Indexes. The euro has advanced 4.5%, while the yen has been the worst performer, dropping 11%.
Trading in over-the-counter foreign-exchange options totaled $21 billion, compared with $25 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 sterling-dollar exchange rate amounted to $3.30 billion, the largest share of trades at 15.8%. Dollar-yen options totaled $3.26 billion, or 15.5%.
Dollar-yen options trading was 46% less than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Pound-dollar options trading was 82% more than average.