Dollar heads for weekly drop before Fed considers stimulus taper

The dollar headed for its biggest weekly decline in six weeks as weaker-than-forecast economic data prompted investors to pare bets of an aggressive reduction in monetary stimulus at the Federal Reserve’s policy meeting next week.

The U.S. currency weakened against the yen (FOREX:USDJPY) today after a report showed retail sales rose less than projected last month, following a report on August payroll growth last week that also trailed forecasts. The U.S. central bank may begin to taper the $85 billion-per-month bond purchases it uses to lower borrowing costs at its meeting Sept. 17-18. The British pound touched its highest level in more than seven months as July construction output rose at its fastest pace in three months.

“I would say the general consensus is still very much that they’ll taper,” said Tom Fitzpatrick, chief technical analyst at Citigroup Inc., by phone from New York. “But we’ve seen just enough to know that the tapering they will do will be in the low end of expectations.”

The Bloomberg U.S. dollar index has fallen 0.7% in the past week, the biggest weekly decline since the week ending Aug. 9. The index was little changed today at 1,023.69 at 3:02 p.m. in New York.

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The U.S. currency fell 0.3% today to 99.26 yen, after rising as much as 0.4%. The dollar was little changed at $1.3304 per euro, after falling as much as 0.2%. The yen gained 0.3% to 132.05 per euro.

The greenback has appreciated 3.9% this year, the best performer after the euro of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro appreciated 4.8% and the yen slumped 10.5%.

“The weaker-than-expected report may have increased the possibility that the Fed either reduces the total amount or potentially delays the time it expects to begin reducing asset purchases,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said by phone. “They’re tempering their views on tapering, you might say.”

The U.K. currency advanced versus all of its 16 major peers before the Bank of England releases the minutes of its September meeting next week amid speculation policy makers may have to raise interest rates sooner than they have projected. Data earlier this week showed the unemployment rate unexpectedly fell.

The pound gained 0.5% to $1.5876 after rising to the highest level since Feb. 1.

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