Dollar declines from one-week high on Fed-tapering speculation

The dollar declined from a one-week high as speculation the Federal Reserve will begin reducing its stimulus measures as soon as next month weighed on demand for assets denominated in the U.S. currency.

The Bloomberg U.S. Dollar Index rose earlier as jobless claims unexpectedly dropped last week to the lowest level in almost six years, Labor Department data showed. The U.S. currency reversed gains against the euro and yen as stocks fell and Treasury yields touched two-year highs. The pound climbed to an eight-week high against the dollar after U.K. retail sales rose more than forecast. The Fed has been buying $85 billion of bonds a month to support the economy and cap borrowing costs.

“The selling of the dollar is consistent with the weakness in the equity market and the bounce off the yield highs in bonds,” Richard Gilhooly, an interest-rate strategist at TD Securities Inc. in New York. “The better data today is misleading.”

The Bloomberg U.S. Dollar Index fell 0.5% to 1,020.31 at 3:46 p.m. New York time after earlier rising 0.4% to 1,028.72, the strongest since Aug. 5.

The dollar dropped 0.8% to $1.3356 per euro and fell 0.8% to 97.34 yen. Japan’s currency added 0.1% to 130.01 per euro.

Benchmark U.S. 10-year note yields were at 2.77% after rising to 2.82%, highest since August 2011. The Standard & Poor’s 500 Index of stocks plunged 1.4%.

Rupiah, Pound

The Indonesian rupiah fell to its weakest level in more than four years after the country’s central bank kept its reference rate on hold and a report showed foreign-exchange reserves fell to the lowest level since 2010. The currency depreciated 0.6% to 10,350 per dollar after earlier falling to 10,353, its lowest since June 2009.

Britain’s pound has strengthened 3.6% in the past month versus the dollar as reports showed purchasing managers indexes of manufacturing, services and construction all improved in July while house prices increased. The economy expanded by 0.6% in the second quarter.

The U.K. currency gained 0.9% to $1.5646 after advancing to $1.5652, the highest since June 19. Sterling appreciated 0.2% to 85.37 pence per euro after reaching 85.05 pence, the strongest since July 3.

New Zealand’s dollar strengthened against most of its 16 major peers as data showed manufacturing expanded at the fastest pace in nine years, job advertisements increased and a gauge of consumer confidence rose. The kiwi rose 0.6% to 80.73 U.S. cents.

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