Dollar still strongest

The dollar strengthened versus the euro before data that analysts forecast will add to evidence that U.S. growth is gathering pace, boosting the appeal of American assets versus those in Europe.

The Bloomberg Dollar Spot Index traded at almost its highest level in five months as signs of economic revival in the U.S. increased Treasury (CBOT:ZNU14) yields over those of their developed-market counterparts to the most in four years last week. Australia’s dollar (CME:A6U14) dropped after the nation’s central bank left interest rates at a record low and Governor Glenn Stevens made few changes to his accompanying statement. The Ghana cedi extended its world’s worst decline this year.

“The economic recovery in the U.S. means yield differentials are working in favor of the dollar,” said Hans-Guenter Redeker, head of global currency strategy at Morgan Stanley in London. “We are bullish on the dollar.”

The dollar (NYBOT:DXU14) appreciated 0.3% to $1.3385 per euro as of 8:41 a.m. New York time. It reached $1.3367 on July 30, the strongest level since Nov. 12. The greenback rose 0.2% to 102.72 yen. Japan’s currency (CME:J6U14) advanced 0.1% to 137.48 versus the euro.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, was little changed at 1,020.80. It rose to 1,023.42 on Aug. 1, the highest level since March 20.
 

Cedi Plunges
 

Ghana’s cedi, the worst performer against the dollar this year among more than 150 currencies tracked by Bloomberg, extended the drop even after the government asked the International Monetary Fund to help rescue it.

The cedi fell 1.5% today to 3.78 per dollar, extending its 2014 plunge to 37%. The new Sudanese pound dropped 3.3% today, while the Solomon Islands dollar led gainers, adding 0.7%.

The Reserve Bank of Australia left its key rate at 2.5% today and reiterated that it sees a period of interest-rate stability.

The Aussie dipped as much as 0.2% versus the dollar after HSBC Holdings Plc and Markit Economics said their index of Chinese services fell to 50 in July from 53.1 the previous month, the lowest since the data started being compiled in November 2005. A reading of 50 is the dividing line between contraction and expansion. China is Australia’s biggest trading partner.

“The Chinese PMI figures came in a bit below expectations, showing a stalling of the recent upturn in the Chinese data,” said Desmond Chua, a strategist at CMC Markets in Singapore, referring to the purchasing managers index released today. “That’s putting some downward pressure on commodity currencies.”
 

Best Performer
 

The Aussie was at 93.14 U.S. cents after appreciating 0.4% during the previous two days. It has strengthened 4.5% against the greenback this year, the most among 16 major peers.

The won gained versus all of its 16 major peers as central- bank data showed the country’s foreign-exchange reserves increased to $368 billion at the end of July from $366.6 billion a month earlier.

South Korean exports jumped 5.7% last month from a year earlier, a government report showed on Aug. 1.

“The won is being supported by greenback sales by exporters and some investors unwinding long dollar positions,” said Park Dae Bong, a currency trader at Nonghyup Bank in Seoul.

The won rose 0.5% to close at 1,028.30 per dollar in Seoul after appreciating 0.3% yesterday.
 

Yield Spread
 

The yield difference between U.S. Treasuries and developed-market government bonds widened to 0.32 percentage point on July 30, the most since April 2010, according to Bank of America Merrill Lynch Bond Indexes. The spread was 0.28 percentage point yesterday.

U.S. factory orders climbed 0.6% in June after falling 0.5% in the previous month, according to the median estimate of economists in a Bloomberg News survey before today’s data.

The Institute of Supply Management’s non-manufacturing index is forecast to increase to 56.5 last month from 56 in June, a separate Bloomberg survey of analysts showed. Readings greater than 50 signal expansion.

An index of services output in the euro area, based on a survey of purchasing managers, rose to 54.2 in July from 52.8 a month earlier, Markit Economics said today.

The U.S. currency gained 1.5% in the past month, making it the best performer among 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes.

Traders see a 58% chance Federal Reserve will raise its interest-rate target to at least 0.5% by July 2015, up from 52.6% at the end of June and 46.2% at the end of the first quarter, based on futures contracts.

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