Dollar at almost 7-week high as service industries top forecasts

ECB Forecasts

Bank of America Corp., Royal Bank of Scotland Group Plc and UBS AG have predicted in the past week that the ECB will cut its benchmark main refinancing rate, now 0.5%, on Nov. 7. The other 67 of 70 economists surveyed by Bloomberg forecast policy makers will leave borrowing costs unchanged.

ECB President Mario Draghi, speaking today in Frankfurt, said that while the “overall economic situation has slightly improved since the middle of last year, interest rates on loans continue to vary widely.” He said a euro area banking union would “improve the situation.”

The European Union cut its forecast for the region’s growth next year to 1.1%, less than the 1.2% estimated in May. Unemployment, now at the highest rate since the euro was introduced, will be at 12.2% in 2014, versus the 12.1% predicted six months ago, the commission said.

The ISM’s non-manufacturing index increased to 55.4 from the prior month’s 54.4, the Tempe, Arizona-based group said today. A gauge above 50 shows expansion. The median estimate in a Bloomberg survey of economists was 54.

‘Underlying Strength’

“The data has increased some optimism that there may not be a downside surprise on payrolls on Friday, which is why we’re seeing a stronger dollar today,” Brian Daingerfield, a Stamford, Connecticut-based currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit, said in a telephone interview.

Payroll gains will shrink to 120,000 in October, according to the median forecast of 88 economists in a Bloomberg survey before the Nov. 8 release, from a 148,000 gain the previous month. The jobless rate is predicted to rise to 7.3%, according to another survey.

Fed policy makers said Oct. 30 that the economy showed signs of “underlying strength” even as they maintained their $85 billion of monthly asset purchases to support the growth and cap borrowing costs. A Bloomberg survey of analysts taken on Oct. 17-18 forecast a March tapering of the purchases. The Federal Open Market Committee next meets Dec. 17-18.

Trading in over-the-counter foreign-exchange options totaled $38 billion, from $34 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the euro- dollar exchange rate amounted to $8.7 billion, the largest share of trades at 23%. Options on the dollar-yen rate totaled $6.1 billion, or 16%.

Euro-dollar options trading was 58% more than the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Dollar-yen options trading was 21% less than average.

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