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

Industrial Output

The dollar gained earlier as the number of applications for unemployment insurance payments declined by 15,000 to 320,000 in the week ended Aug. 10, the fewest since October 2007, from a revised 335,000, a Labor Department report showed today in Washington. The median forecast of 44 economists surveyed by Bloomberg called for applications totaling 335,000.

The currency erased the advance after industrial production in the U.S. was unchanged in July as a slowdown at factories overshadowed an increase in mining. The reading for output at factories, mines and utilities followed a 0.2% gain the prior month that was smaller than previously reported, a report from the Federal Reserve showed. The median forecast in a Bloomberg survey called for a 0.3% rise in July.

“When the claims data came out, it positively impacted the dollar, but since then we had other data that suggests some weakness in the U.S. economy,” said Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York. “The manufacturing side of the economy is still struggling.”

Fed Outlook

Fed Chairman Ben S. Bernanke next month will probably reduce the central bank’s monthly bond purchases, according to 65% of economists surveyed by Bloomberg. The Federal Open Market Committee’s first step may be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13.

“If it turns out it’s just a token amount -- no more than $10 billion -- and if he spells out a scenario whereby there in no rush to keep slowing purchases, then the dollar could actually start falling through the tapering,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “U.S. yields have come a little bit off their highs, so that explains a little bit of the reversal in the dollar.”

Options Trading

The dollar has fallen 2.3% over the past month, the most according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro gained 0.1% and the yen added 0.5%.

Trading in over-the-counter foreign-exchange options totaled $26 billion, equal to yesterday’s total, 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 $8 billion, the largest share of trades at 30%. Options on the dollar-Chinese yuan rate totaled $2.5 billion, or 9%.

Dollar-yen options trading was 23% more than the average for the past five Thursdays at a similar time in the day. Dollar-yuan options trading was 161% more than average.

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