The dollar strengthened versus the majority of its most-traded peers amid expectations the Federal Reserve will reiterate plans this week to reduce stimulus if economic performance continues to show signs of improvement.
Japan’s currency advanced against all of its 16 major peers after Japanese retail sales fell and Chinese industrial companies reported slowing profits, boosting demand for haven assets. The Bloomberg Dollar Index rose from almost six-week low after an industry report showed pending U.S. home sales declined less than forecast. The Federal Reserve’s Open Market Committee starts a two-day meeting tomorrow.
“You’re just seeing a little bit of position adjusting ahead of this week’s events,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York. “The second half of the week will be more positive for the dollar.”
The dollar rose 0.1 percent to $1.3262 per euro at 5 p.m. New York time. The greenback slid 0.3 percent to 97.96 per yen, falling for a third day versus its Japanese counterpart. Japan’s currency appreciated 0.4 percent to 129.91 per euro.
The MSCI Asia Pacific Index of stocks dropped 1.7 percent, while the Topix index of Japanese shares slid 3.3 percent. Standard & Poor’s 500 Index lost 0.4 percent.
Trading in over-the-counter foreign-exchange options totaled $18.9 billion, down 33 percent from the average, according to data reported to U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $4 billion, the largest share of trades at 21 percent. Options on the pound-dollar rate totaled $2.2 billion, or 11 percent.
Currency trading volumes in the U.S. and U.K. rose to records in April, according to the Foreign Exchange Committee’s twice-yearly survey.
The average-daily-volume of U.S. currency trading rose 27 percent since October to $1 trillion, the committee said today in a statement. U.K. volume rose 26 percent to $2.55 trillion.
Dollar-yen trading made up 47 percent of the increase in American trading volume, while the pair more than doubled in the U.K., the committee said.
The New Zealand dollar has gained 3.9 percent to the greenback this month, the most out of all major counterparts, while Brazil’s real has led all decliners with a 1.6 percent decrease. This year, the Mexican peso has led all gainers with a 0.8 percent increase, while South Africa’s rand has plunged 13 percent.
Sweden’s krona climbed against all most of its major peers after a report from Stockholm-based Statistics Sweden showed retail sales grew an annual 3.6 percent in June, up from 3.1 percent in May. The median estimate in a survey of five economists was for sales to grow 2.1 percent. The krona appreciated 0.2 percent to 8.5903 per euro.
Investors should buy the krona while selling Norway’s krone as the two Scandinavian economies diverge, Morgan Stanley strategists including Hans Redeker wrote in client note today.
The South African rand slid after the Pretoria-based Reserve Bank said growth in borrowing by the nation’s households and companies slowed to 8.9 percent in June from 9.1 percent in the previous month. The rand weakened 0.2 percent to 9.7938 per dollar.
Malaysia’s ringgit decreased against all 31 of its most-traded counterparts as the prospect of slower growth in China dimmed the outlook for Malaysian shipments. The currency slipped 0.7 percent to 3.23, its weakest level since October 2011.
Japanese retail sales dropped 0.2 percent last month compared with May, figures today showed, missing the median estimate for a 0.8 percent increase in a Bloomberg News survey of economists.
Japan’s economic expansion will be moderate going forward and some time is needed before the Bank of Japan’s inflation target is reached, Governor Haruhiko Kuroda said in Tokyo. He also said a planned sales-tax increase “won’t give major damage to the growth in Japan’s economy.”
The dollar-yen’s one-month implied volatility rose to 13.75 percent, the most since July 11. The yen tends to strengthen during periods of financial and economic turmoil because Japan isn’t reliant on foreign capital to fund its deficit.
“The slowdown in emerging markets is spreading to other economies and that’s helping to support the yen,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “It’s also a function of broader dollar weakness, which is pushing the yen up.”
Investors should sell the yen if it appreciates to 95 per dollar on a bet that the U.S. economy will strengthen later this year, Hardman said.
The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, gained 0.1 percent to 1,024.13 after touching 1,021.21, the lowest since June 19.
An index of pending homes sales in the U.S. declined 0.4 percent in June from the previous month, when it increased a revised 5.8 percent, according to data released by the National Association of Realtors. The median estimate of economists surveyed by Bloomberg News was for a 1 percent decrease.
Economists in a separate Bloomberg survey estimate the Conference Board will say tomorrow its gauge of consumer confidence fell to 81 in July from 81.4 in June.
“The FOMC statement may reflect the recent slowdown in the U.S. economy,” Shinichiro Kadota, a strategist for non-yen debt at Barclays Plc in Tokyo, wrote in a report to clients today. “Should expectations of the Fed’s stimulus reduction be pushed back further or economic data disappoint, the dollar will likely face further downward pressure.”
The dollar won’t get a boost from the FOMC statement this week, Steven Saywell, a currency strategist at BNP Paribas SA, wrote today in a client note. The risk-reward on new dollar long positions is not attractive heading into the meeting, he wrote.
Fed Chairman Ben S. Bernanke told Congress earlier this month that any reduction in stimulus would depend on the economy’s performance. The U.S. central bank purchases $85 billion of Treasuries and mortgage debt each month. It has held the benchmark interest-rate target at zero to 0.25 percent since 2008 to support the economy.
The yen and Australian dollar have tumbled 8.9 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has gained the most, rising about 4.9 percent, while the dollar has added 4.3 percent.