Dollar to rebound?

The dollar fell against most of its 16 major peers on speculation the U.S. economy failed to rebound as much as investors forecast in the second quarter.

The greenback (NYBOT:DXU14) fluctuated versus the yen after six days of gains as the Federal Reserve begins meetings tomorrow to debate the pace of interest-rate increases and whether to further reduce bond purchases. The Russian ruble (CME:R6Q14) weakened for a third day on concern additional sanctions may hinder the economy. New Zealand’s dollar fell to a six-week low.

“Expectations are we’ll see rebounding growth, but the risks are somewhat tilted to the downside,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That’s triggering some caution in long-dollar positions.” A long position is a bet that a currency will appreciate in value.

The dollar fell 0.1% to $1.3437 per euro as of 9:20 a.m. New York time. It touched $1.3422 on July 25, the strongest since Nov. 21. The U.S. currency slipped 0.1% to 101.80 yen, while the euro was little changed at 136.79 yen.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, was little changed at 1,013.90 from the end of last week, when it rose 0.5%, the most since the period ending March 21, and touched 1,014.39, the highest since June 18.
 

Ruble Sinks
 

Hungary’s forint was the top gainer among the dollar’s 31 major peers, adding 0.2%, while Australia’s dollar increased 0.1%. The ruble dropped 0.8%, to pace decliners, with South Africa’s rand (CME:T6U14) slipping 0.3%.

The ruble weakened as satellite photos that the U.S. said prove Russia shelled across the border into Ukraine are fueling bets tougher sanctions will be applied, according to Nicholas Spiro, managing director of Spiro Sovereign strategy in London.

“The Russian market and the ruble remain very sensitive to the news-flow on sanctions,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said in e-mailed comments. “The EU’s promise to introduce its severest sanctions ever erases temptations to start buying Russian assets, even at current low levels.”

Russia’s currency fell as much as 0.9% to 35.4300 per dollar, the least since May 7.

The New Zealand dollar (CME:N6U14) fell 0.1% 85.47 U.S. cents after tumbling to 85.30 cents, the least since June 12. It reached 88.36 cents on July 10, the strongest since the post- float high of 88.43 set in August 2011.

Reserve Bank of New Zealand Governor Graeme Wheeler said on July 24 that the currency’s level is “unjustified and unsustainable,” after signaling a pause following four interest-rate increases this year.
 

U.S. Economy
 

Economists in a Bloomberg survey predict the U.S. Commerce Department will say on July 30 that gross domestic product rose at a 3% annualized rate in the second quarter. The 2.9% contraction in the first quarter was the worst reading since the same three months in 2009.

A Labor Department report on Aug. 1 will show nonfarm payrolls increased 231,000 in July, according to economists’ forecasts, which would represent a sixth-straight month with 200,000 or more in job gains for the first time since 1997.

The Bloomberg Dollar Spot Index tumbled 0.4% on June 18 after Fed Chair Janet Yellen said the central bank plans to keep its interest-rate target low for a “considerable time” after it ends bond-buying. The gauge bottomed at an almost two- month low of 1,002.25 on July 1.

It has since wiped out almost all of that loss amid improved labor-market measures before the Fed announces its next policy decision on July 30.
 

‘Dollar Strength’
 

“We expect dollar strength to unfold,” said Petr Krpata, a foreign-exchange strategist at ING Groep NV in London. “We are going to see divergence in monetary policy. In the U.S. it will be slowly and surely towards eventual rate hikes. We are going to see a rise in short-term U.S. yields and this should bode well for the dollar.”

Futures traders increased bullish bets on the dollar versus the euro (CME:E6U14) to the most since November 2012.

The difference in the number of wagers by hedge funds and other large speculators on an advance in the greenback against the shared currency compared to those on a decline -- so-called net longs -- was 88,823 on July 22, compared to 62,846 in the previous week, figures from the Washington-based Commodity Futures Trading Commission show. Net dollar longs versus the yen declined to 53,916, the least since May 20.

The dollar has risen 1.2% in the past month, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has gained 0.8% in the same period, while the euro has lost 0.5%.

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