Dollar Falls as GDP Trails Forecast, Jobless Claims Increase

Dollar Falls as GDP Trails Forecast, Jobless Claims Increase

July 31 (Bloomberg) -- The dollar fell for the first time in three days against the euro as reports showed the U.S. economy grew less than forecast in the second quarter and initial jobless claims rose last week to a five-year high.

The euro advanced earlier against the dollar as European inflation accelerated to the fastest pace in 16 years. The pound dropped against the euro after reports showed British consumer confidence declined this month to a record low and house prices fell the most in almost two decades.

``The economic backdrop is far less robust than people thought,'' said Tom Fitzpatrick, global head of currency strategy at Citigroup Global Markets Inc. in New York. ``Today's numbers provide a platform to send the euro-dollar to new highs.''

The dollar dropped 0.4 percent to $1.5641 per euro at 10:33 a.m. in New York, from $1.5576 yesterday. The U.S. currency declined to the record low of $1.6038 on July 15. The euro increased 0.2 percent to 168.71 yen, from 168.41. The U.S. currency dropped 0.3 percent to 107.85 yen, from 108.13.

Today's decline pared the greenback's gain versus the euro this month to 0.8 percent. The dollar has advanced 1.6 percent against the yen, while the euro has gained 0.9 percent versus Japan's currency.

Sterling declined 0.2 pence to 78.73 pence per euro today after the London-based market-research firm GfK NOP said its index of consumer confidence fell to the lowest since the data began in 1974. The average value of a home dropped 8.1 percent from a year earlier, the biggest decline since at least 1991, said Nationwide Building Society, Britain's fourth-biggest mortgage lender.

Fed Rate Outlook

Futures contracts on the Chicago Board of Trade showed a 32 percent chance of the Fed raising its 2 percent target rate for overnight loans between banks by at least a quarter-percentage point by Sept. 16, down from 38 percent odds yesterday. Most traders expect policy makers to keep borrowing costs unchanged when they next meet Aug. 5.

U.S. gross domestic product increased at an annual rate of 1.9 percent in the second quarter after revised 0.9 percent growth in the first three months of the year, the Commerce Department reported today. The median forecast of 79 economists surveyed by Bloomberg News was for an advance of 2.3 percent.

Initial jobless claims rose to 448,000 in the week ended July 26, from a revised 404,000 the prior week, the Labor Department said. Economists in a Bloomberg survey had forecast a drop in claims. The total number of initial filings last week was the highest since April 2003.

Company Hiring

The U.S. currency touched a one-month high against the euro yesterday after a private report showed companies unexpectedly added jobs this month.

``The dollar's rally was built on a shaky foundation,'' said Stephen Malyon, co-head of currency strategy at Scotia Capital Inc. in Toronto. ``Today's numbers just highlighted there's more downside risk to growth. The jump in jobless claims puts a brake on the dollar's rally.''

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast 0f 79 economists surveyed by Bloomberg News. The Labor Department's report, which includes government hiring, is due tomorrow.

The euro strengthened versus the dollar as the European Union statistics office reported that the euro zone's inflation rate rose to 4.1 percent this month, the biggest increase since April 1992. The European Central Bank raised its main refinancing rate to 4.25 percent on July 3, the highest level since 2001.

European Inflation

``We're going to see inflation moving further to the upside,'' said Jeremy Stretch, a senior strategist in London at Rabobank International, the third-largest Dutch bank. ``That might just lead the market to think that even with the downturn in economic data, the ECB might turn toward tighter monetary policy. That's providing a little support for the euro.''

South Africa's rand rose as much as 0.9 percent to 7.3291 versus the dollar, the strongest since Feb. 4, after a report showed the country's trade deficit unexpectedly narrowed in June. The rand has increased 6.2 percent this month for the best performance among the world's major currencies.

Turkey's lira advanced to a six-month high after the Constitutional Court rejected yesterday a call by prosecutors to ban the party of Prime Minister Recep Tayyip Erdogan, which is seeking to introduce Islamic law in secular Turkey. The lira climbed as much as 2.4 percent to 1.1555 per dollar, its strongest since Jan. 15. It has gained 5.4 percent versus the dollar this month.

Fundamental Outlook at 1400 GMT (EDT + 0400)

Fundamental Outlook at 1400 GMT (EDT + 0400)

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The euro extended yesterday’s losses vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.5520 level and was capped around the $1.5615 level. The common currency reached its lowest level since 24 June as traders continued to price in the likelihood of a further slowdown in the eurozone economy. Traders also increased their exposure to the U.S. dollar after ADP private sector jobs unexpectedly increased 9,000 in July, defying expectations of a sizable decline. Some economists are upwardly revising their forecasts for the July non-farm payrolls report that will be released on Friday. In other U.S. news, the Federal Reserve announced actions to enhance its existing liquidity facilities including an extension of the Fed’s Primary Dealer Credit Facility and Term Securities Lending Facility through 30 January 2009. The Fed noted there remains “continued fragile circumstances in financial markets” and the Fed will also launch an 84-day Term Auction Facility from 11 August, complementing the 28-day facility it already offers. The European Central Bank and Swiss National Bank reported they are planning to extend the maturity of their liquidity operations, essentially availing U.S. dollars to European banks over a longer period of time. In eurozone news, EMU-15 July economic sentiment fell to 89.5, its worst level in more than five years. Some traders believe the ECB will reduce its assessment on economic growth at next week’s Governing Council meeting. Banco de Espana reported the eurozone faces higher upside inflation risks. Other data saw German June new machinery, plant orders off 5.0% y/y while EMU-15 retail PMI improved to 46. Euro bids are cited around the $1.5585/ 1.5230 level.

¥/ CNY

The yen depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the ¥108.35 level and was supported around the ¥107.70 level. The pair reached its highest level since 25 June as traders continued to speculate the Japanese economy will weaken further. Most traders believe Bank of Japan’s Policy Board will keep the overnight call rate unchanged at 0.50% for the foreseeable future. Data released in Japan overnight saw June industrial output fall 2.0% m/m, worse-than-expected, and was up 0.2% y/y. Traders are waiting for this week’s likely cabinet shuffle by Prime Minister Fukuda to see if decision-makers at the finance and economy ministries are replaced. The Nikkei 225 stock index gained 1.58% to close at ¥13,367.79. Dollar bids are cited around the ¥106.40 level. The euro came off vis-à-vis the yen as the single currency tested bids around the ¥167.95 level and was capped around the ¥168.60 level. The British pound moved higher vis-à-vis the yen as sterling tested offers around the ¥214.35 level while the Swiss franc came off vis-à-vis the yen and tested bids around the ¥102.85 level. The Chinese yuan depreciated vis-à-vis the U.S. dollar as the greenback closed at CNY 6.8272 in the over-the-counter market, up from CNY 6.8264.

₤

The British pound moved higher vis-à-vis the U.S. dollar today as cable tested offers around the US$ 1.9845 level and was supported around the $1.9745 level. Technically, today’s intraday low was just below the 23.6% retracement of the move from $2.1160 to $1.9335. Traders are awaiting details of a possible government-sponsored program to swap mortgage assets for gilts. Cable bids are cited around the $1.9360 level. The euro moved lower vis-à-vis the British pound as the single currency tested bids around the ₤0.7850 level and was capped around the ₤0.7875 level.

CHF

The Swiss franc depreciated vis-à-vis the U.S. dollar today as the greenback tested offers around the CHF 1.0520 level and was supported around the CHF 1.0440 level. The pair traded at its highest level since 13 June. Data released in Switzerland today saw the KOF leading economic barometer fall to 0.9 in July from a revised 0.99 in June, its lowest level in give years. U.S. dollar offers are cited around the CHF 1.0515/ 1.0625 levels. The euro and British pound gained ground vis-à-vis the Swiss franc as the crosses tested offers around the CHF 1.6335 and CHF 2.0785 levels, respectively.

Technical Outlook at 1230 GMT (EDT + 0400)

(Bid Price) (Today’s Intraday Range)

EUR/ USD 1.5541 1.5615, 1.5521
USD/ JPY 108.25 108.33, 107.68
GBP/ USD 1.9770 1.9843, 1.9745
USD/ CHF 1.0505 1.0520, 1.0439
AUD/ USD 0.9423 0.9527, 0.9410
USD/CAD 1.0258 1.0268, 1.0218
NZD/USD 0.7325 0.7400, 0.7314
EUR/ JPY 168.25 168.61, 167.94
EUR/ GBP 0.7861 0.7878, 0.7857
EUR/ CHF 1.6328 1.6333, 1.6285
GBP/ JPY 214.00 214.18, 213.24
CHF/ JPY 103.00 103.40, 102.87

Dollar Advances to One-Month High as U.S. Companies Add Jobs

Dollar Advances to One-Month High as U.S. Companies Add Jobs

July 30 (Bloomberg) -- The dollar rose to a one-month high versus the euro and the yen after a private report showed U.S. companies unexpectedly added jobs this month.

The greenback also gained as a decline in crude oil eased concern elevated fuel costs will erode consumer spending. New Zealand's dollar dropped against all of the other major currencies except the Australian dollar after Reserve Bank Governor Alan Bollard said slowing economic growth will curb inflation in the next two years.

``It's premature to say employment destruction has hit bottom, but today is a good sign,'' said Mike Moran, a senior currency strategist at Standard Chartered in New York. ``In conjunction with a pullback in oil prices recently, it certainly contributed to the dollar's recovery.''

The dollar increased 0.4 percent to $1.5524 per euro at 9:49 a.m. in New York, from $1.5588 yesterday. It touched $1.5522, the strongest level since June 24. It may advance to $1.5460, Moran said. The U.S. currency rose 0.2 percent to 108.30 yen, from 108.11. It touched 108.33, the highest since June 25. The euro fell 0.2 percent to 168.14 yen, from 168.53.

The Australian dollar declined 1 percent to 94.32 U.S. cents after a government report showed home-building approvals unexpectedly dropped in June for a second month. The Aussie decreased 0.9 percent to 102.08 yen.

Weaker Kiwi

New Zealand's dollar fell to a 10-month low against its U.S. counterpart after Bollard said in a speech in Auckland that ``weakness in the economy will be sufficient to bring inflation and inflation expectations down over the medium term.'' The kiwi dropped 1.1 percent to 73.23 U.S. cents after touching 73.16, the lowest level since Sept. 25.

The U.S. dollar strengthened versus the euro as ADP Employer Services reported that companies added 9,000 jobs in July after cutting a revised 77,000 positions in the previous month. The median forecast of 29 economists surveyed by Bloomberg News was for a reduction of 60,000 jobs.

Non-farm payrolls dropped by 75,000 this month following a decline of 62,000 in June, according to the median forecast in a separate Bloomberg survey. The Labor Department is scheduled to release its report Aug. 1.

Crude oil fell for a second day, declining as much as 0.8 percent to $121.25 a barrel on the New York Mercantile Exchange. It has dropped 17 percent from the record of $147.27 set on July 11. The euro-dollar exchange rate and oil have had a correlation of 0.9 in the past year, according to Bloomberg calculations based on the correlation of their value changes. A reading of 1 would mean they moved in lockstep.

`Starts to Align'

``Everything starts to align for the dollar,'' said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. ``There's optimism that we're starting to see some stabilization in the U.S. economy. A slowing global economy will likely reduce global demand for commodities. It's another positive for the dollar.''

The Dollar Index, which tracks the greenback against the currencies of six U.S. trading partners, reached 73.493, the highest level since June 24.

The U.S. currency may rise further versus the yen as Japanese investors invest their summer bonuses in overseas assets offering higher yields, according to Daisaku Ueno, a senior economist and currency analyst in Tokyo at Nomura Securities Co., Japan's largest brokerage.

`Individual Money'

``Emerging markets are constantly attracting Japanese individual money,'' said Ueno. Japan's currency may weaken to 110 per dollar by year-end, he said.

Employees at private companies were paid summer bonuses in June and July totaling 14.8 trillion yen, according to Kazuyoshi Nakata, an economist in Tokyo at Mitsubishi UFJ Research & Consulting Co., a unit of Japan's largest publicly traded lender.

HSBC Investments will seek to raise 50 billion yen for a fund focused on Brazil's stocks tomorrow, while Nomura Asset Management will seek 60 billion yen for global stocks Aug. 1. Brazil's Bovespa Index, measured in yen, advanced 16 percent over the past 12 months, according to Bloomberg calculations. Japan's Nikkei 225 Stock Average fell 23 percent.

The Bank of Japan's target lending rate of 0.5 percent is the lowest among industrialized economies, making overseas assets more attractive to domestic investors.

Implied volatility on one-month dollar-yen options fell to 10.06 percent, from 10.73 percent a week earlier. Lower volatility may encourage carry trades, in which investors borrow in countries with low interest rates and buy assets where returns are higher.

Dollar Rises to One-Month High as Confidence Rises, Oil Falls

Dollar Rises to One-Month High as Confidence Rises, Oil Falls

July 29 (Bloomberg) -- The dollar advanced to a one-month high versus the euro and the yen as U.S. consumer confidence increased and crude oil prices dropped, reducing concern the economy may fall into a recession.

The currency rose against the yen and New Zealand's dollar as unemployment climbed in Japan last month and home building permits fell to the lowest in almost 22 years in New Zealand. The pound fell versus the dollar after an index of U.K. retail sales dropped in July to a 25-year low.

``A lot of bad news has been priced in,'' said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.

The dollar increased 0.8 percent to $1.5616 per euro at 10:28 a.m. in New York, from $1.5741 yesterday. It touched $1.5596, the strongest level since June 25. The U.S. currency appreciated 0.7 percent to 108.18 yen, from 107.46, and reached 108.29, the highest since June 25. The euro traded at 169.13 yen, compared with 169.17.

Sterling weakened 0.6 percent to $1.9813 after the Confederation of British Industry said its survey of 82 retailers showed 25 percent sold more goods than a year earlier and 61 percent sold fewer. The net rounded balance of minus 36 percentage points was the lowest since the survey began in 1983.

Weaker Yen

The yen declined earlier against the dollar after government reports showed Japan's unemployment rate rose in June to 4.1 percent, the highest level in almost two years, and household spending fell, adding to signs the economy's longest postwar expansion may be ending.

The New Zealand dollar fell against all of the other major currencies after a report showed home building approvals decreased 20 percent in June to 1,337, the lowest since October 1986. The kiwi declined 1.2 percent to 73.66 U.S. cents.

``At this stage, bad news in the U.S. will be translated to bad news elsewhere,'' Ruskin said. ``It provides some cushion to the dollar.''

In France, a gauge of consumer sentiment dropped in July to minus 48, the lowest level since the index was introduced in 1987, from minus 46 in June, according to Insee, the national statistics office in Paris.

``The euro-zone economy's outlook has really become more bleak,'' said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. ``Ultimately, that means the upside for the euro-dollar is becoming more capped.'' The euro will decline to $1.55 by year-end, Rabobank forecasts.

European Outlook

Traders reduced bets the ECB will raise its 4.25 percent main refinancing rate this year. The implied yield on the December Euribor futures contract dropped to 5.09 percent, from 5.12 percent yesterday.

The Conference Board's confidence index rose this month to 51.9, higher than forecast, from a revised 51 in June. The Standard & Poor's 500 Index increased 1.2 percent, after falling 1.9 percent yesterday.

Crude oil for September delivery dropped as much as 1.5 percent to $122.92 a barrel. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

China's yuan advanced after central bank Governor Zhou Xiaochuan underscored policy ``continuity,'' spurring speculation China will let the currency rise further to stem inflation. The yuan climbed 0.1 percent to 6.8256 per dollar.

Dollar Falls Against Euro, Yen on Credit Losses, Oil Increase

Dollar Falls Against Euro, Yen on Credit Losses, Oil Increase

July 28 (Bloomberg) -- The dollar declined from near a three-week high against the euro and the strongest in a month versus the yen on concern U.S. financial losses will widen and as crude-oil prices increased.

The currency dropped for a second day against the euro after Federal Reserve Bank of Minneapolis President Gary Stern told the Financial Times the U.S. credit crunch will get worse. The pound fell against all of the other major currencies as U.K. house values dropped in July the most in at least seven years.

``The financial sector is far from being healthy,'' said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. ``The Fed won't be able to raise rates any time soon given what's happening in the credit market. It's very difficult for the dollar to have a sustained rally.''

The dollar fell 0.3 percent to $1.5758 per euro at 8:41 a.m. in New York, from $1.5709 on July 25. It touched $1.5629 on July 24, the strongest since July 7. The dollar will trade in a range of $1.5650 to $1.5950 in the next few weeks, Serebriakov said. The U.S. currency dropped 0.2 percent to 107.61 yen, from 107.84, after earlier reaching 108.07, the highest since June 26. The euro traded at 169.55 yen, compared with 169.40. It touched the all-time high of 169.96 on July 23.

The pound decreased 0.2 percent to $1.9868 after Hometrack Ltd., a London-based research company, said U.K. house values dropped in July 4.4 percent from a year earlier. That's the biggest annual drop since the index started in 2001. Sterling weakened 0.5 percent to 79.24 pence per euro.

Chinese Yuan

The Chinese yuan fell 0.2 percent to 6.8345 per dollar after the Communist Party's Politburo said on July 25 that growth and inflation are both priorities, fueling speculation that the government will curb currency appreciation to aid exporters. The yuan has strengthened 7 percent this year, the most among Asia's 10 most-traded currencies outside Japan.

The Australian dollar traded at 95.63 U.S. cents after touching 95.28 cents, the lowest in almost three months. Australia & New Zealand Banking Group Ltd., the nation's fourth- biggest bank by market value, joined National Australia Bank Ltd., the largest in terms of assets, in warning of increased provisions for non-performing loans.

Six months after correctly identifying Australia's dollar as one of the best bets in the foreign-exchange market, Daiwa Asset Management Co., the biggest investor in the nation's debt, predicts that the rally is coming to an end. Daiwa, which holds 4 percent of the government's bonds, expects the currency to close the year at $1.

Price Index

The credit crunch is likely to last for months and may deteriorate further, Stern said in an interview with the Financial Times. Financial firms have reported $467.9 billion in losses and writedowns since the start of 2007.

U.S. home prices in the S&P/Case-Shiller index fell 16 percent in May from a year ago, the most on record, according to the median forecast of 21 economists surveyed by Bloomberg News. The report is due tomorrow. Nonfarm payrolls fell by 75,000 in July, following a decline of 62,000 in June, according to a separate survey. The Labor Department will release the employment data on Aug. 1.

``Data on housing and payrolls pose downside risks to the dollar,'' said Akifumi Uchida, deputy general manager of the marketing unit at Sumitomo Trust & Banking Co. in Tokyo. ``Given the state of the housing market, you can't be overly optimistic on the U.S. economy. That makes it almost impossible for the Fed to raise rates.'' The dollar may fall to 106 yen this week, he said.

Fed Rate Outlook

Futures on the Chicago Board of Trade show a 93 percent chance the Fed will keep borrowing costs on hold at 2 percent when it announces its next decision on Aug. 5, up from 64 percent odds a month ago.

Consumer confidence in Germany dropped to the lowest in more than five years as soaring energy prices sapped purchasing power. GfK AG's index for August, based on a survey of about 2,000 people, declined to 2.1, the lowest since June 2003, from a revised 3.6 in July, the Nuremberg-based market-research company said in a statement today.

``The European economy is facing a major setback,'' wrote Tomoko Fujii, head of Japan economics and strategy at Bank of America in Tokyo, in a research note today. ``The markets cannot price in an ECB rate hike anymore. We are recommending euro- selling against the dollar.'' The 15-nation currency may fall to $1.54 against the dollar by the end of September, she said.

Crude oil for September delivery gained as much as $1.96 to $125.22 a barrel in electronic trading on the New York Mercantile Exchange. Oil has tumbled about $23 a barrel from the record $147.27 a reached on July 11.