Dollar falls second day against yen on Fed outlook

The dollar fell for a second day against the yen as investors weighed when the Federal Reserve will slow the pace of bond purchases that have contributed to weakening the greenback.

The U.S. currency trimmed losses after a measure of service industries in July rose more than forecast. It fell Aug. 2 after a government report showed American employers hired fewer workers last month than economists predicted. The yen strengthened today as Japanese stocks slid, spurring demand for the safety of the nation’s currency. The pound rose as U.K. services growth accelerated. New Zealand’s dollar slumped after China halted imports of milk powder from Auckland-based Fonterra Cooperative Group Ltd.

“That payroll data out of the U.S. is the main catalyst I think for the dollar,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “Last Friday kept tapering on the table, maybe it gave people reason to question whether September was a little early -- is December more likely? But I think it’s still a 2013 event as opposed to 2014.”

The dollar (NYBOT:DXU13) dropped 0.4% to 98.60 yen at 11:26 a.m. New York time after sliding 0.6% on Aug. 2. The U.S. currency rose 0.1% to $1.3257 per euro. The yen strengthened 0.5% to 130.72 per euro after depreciating to 132.74 on July 24, the weakest level since May 23.

The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major counterparts, was little changed at 1,028.66 after sliding 0.6% on Aug. 2.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $12.5 billion, compared with $33 billion on Aug. 2, 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 $2.6 billion, the largest share of trades at 21%. Options on the Australian-U.S.-dollar rate totaled $2.4 billion, or 19%.

Dollar-yen options trading was 42% less than the average for the past five Mondays at a similar time in the day, according to Bloomberg analysis. Aussie-U.S.-dollar options trading was 54% more than average.

U.S. nonfarm payrolls rose by 162,000 in July, the smallest gain in four months, the Labor Department said Aug. 2. Economists surveyed by Bloomberg projected 185,000.

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