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.
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.
The Institute for Supply Management’s U.S. non- manufacturing index increased to 56 July from 52.2 the prior month, a report from the Tempe, Arizona-based group showed today. The median forecast in a Bloomberg survey of economists called for a gain to 53.1. Readings higher than 50 indicate growth in the industries that make up almost 90% of the economy.
Fed Chairman Ben S. Bernanke said on June 19 the central bank may start dialing back its bond-buying program this year if the economy achieves sustainable growth. It has been buying $40 billion of mortgage-backed bonds and $45 billion of Treasuries each month to inject cash into the economy. The Fed has kept its benchmark lending rate at zero to 0.25% since 2008 to help cap borrowing costs.
“The markets have got used to the idea that we’re not staying at zero rates forever with quantitative easing forever, but we’re not going to start even thinking about rate hikes on a one-, two-year horizon unless the economy sees a faster pace of economic growth,” Kit Juckes, a global strategist at Societe Generale SA in London, said in an interview on Bloomberg Radio’s “Surveillance” with Tom Keene. “We’re going to get a slower pace of bond purchases from back end of September onwards and by this time next year they won’t be buying any bonds.”
Half of the 54 economists in a July 18-22 Bloomberg survey expected the Fed to decide to reduce the bond purchases at its next meeting on Sept. 17-18.
The dollar has strengthened 5.7% in the past six months, the best performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro gained 2.8%, while the yen weakened 0.2%.
The yen rose against all except two of its 16 major peers as the Nikkei 225 Stock Average slid 1.4% as it reacted to last week’s U.S. payroll data.
The yen tends to strengthen during periods of financial turmoil because Japan’s current-account surplus makes the country less reliant on foreign capital.
Futures traders reduced bets the would weaken against the dollar, figures from the Commodity Futures Trading Commission published on Aug. 2 showed.
The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 82,135 on July 30, compared with net shorts of 87,496 a week earlier.
The pound strengthened for a second day against the dollar as the U.K. services data added to signs Britain’s economy is gathering momentum.
“It’s surprising the foreign-exchange market for sure, to see how upbeat some of the data is,” said Neil Jones, head of European hedge-fund sales at Mizuho Bank Ltd. in London. “The U.K. is doing better than people expected and consequently the market is running short of the pound.”
The pound advanced 0.2% to $1.5321 after jumping 1.2% on Aug. 2, the biggest gain since June 6. Sterling appreciated 0.4% to 86.48 pence per euro.
The kiwi fell for a sixth day against the U.S. currency after Fonterra, the world’s largest dairy exporter, said on Aug. 3 that three batches of a whey protein made at a New Zealand plant last year may contain bacteria that can cause botulism. Dairy products make up about a quarter of the South Pacific nation’s total overseas sales.
New Zealand’s dollar tumbled 0.7% to 77.87 U.S. cents after falling to 76.84 cents on June 24, the weakest level since June 2012.