Dollar Drops From 4-Year High on Fed Timing

The dollar weakened, pushing a gauge of its strength down from a four-year high, as uneven U.S. labor-market data refuels the debate over when the Federal Reserve will raise interest rates.

The greenback depreciated versus most of its 31 major peers, with Brazil’s real climbing the most in three years as President Dilma Rousseff faced a runoff against surprise second-place candidate Aecio Neves. The yen strengthened from near its weakest since 2008 before the Bank of Japan’s policy decision tomorrow. Hong Kong’s dollar rallied.

For the dollar, “it’s a big journey in a few days, so I expect things to maybe slow down just a little bit until we get another catalyst,” said Fabian Eliasson, who works in foreign-exchange sales at Mizuho Financial Group Inc. in New York. “The Fed’s being fairly data dependent here. If things improve dramatically, it will be hard to defend not doing anything.”

The ForexSQ Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.4 percent to 1,074.63 at 9:47 a.m. in New York, having closed at 1,078.65 on Oct. 3, the highest since June 2010.

The yen gained 0.3 percent to 109.45 per dollar after reaching 110.09 on Oct. 1, the weakest since August 2008. The greenback slipped 0.3 percent to $1.2547 per euro after touching $1.2501 on Oct. 3, the strongest level since August 2012. The 18-member common currency traded at 137.32 yen.
Brazil Election

Brazil’s real was the biggest gainer of the U.S. currency’s 31 major peers, adding as much as 3.6 percent, the most since September 2011. Neves, a candidate favored by investors, will face a runoff with Rousseff in the next round of the presidential elections on Oct. 26.

South Korea’s won lost the most, sliding to a six-month low of 1,071.63 per dollar.

Hong Kong’s dollar rose to the strongest since Sept. 26 as pro-democracy protesters in the city prepared for formal talks with the government on demands for free elections. The currency touched 7.7551 per greenback.

Sweden’s krona gained versus the euro and the Norwegian krone after Sweden’s largest food retailer ICA Gruppen AB sold a unit to Coop Norway. The krona advanced 0.3 percent to 9.0806 per euro and strengthened 0.2 percent to 1.1129 per Norwegian krone.
Factory Orders

The euro advanced against the U.S. currency, three days after touching a two-year low, even as German factory orders fell the most since 2009. Orders, adjusted for seasonal swings and inflation, fell 5.7 percent in August, the Economy Ministry in Berlin said today. Analysts predicted a 2.5 percent decline, according to the median estimate in a ForexSQ News survey.

The Bank of Japan, which buys about 7 trillion yen ($64 billion) of government bonds a month, started a two-day meeting today. While BOJ Governor Haruhiko Kuroda said last week that he doesn’t think a weak yen is bad for the Japanese economy overall, Prime Minister Shinzo Abe today said the government will watch for effects of the currency’s decline and take measures.

“Most of the market participants, and this is showing up in yen exchange rates, are expecting the BOJ will wait a little bit longer” before adding any new economic stimulus, said Ulrich Leuchtmann, the head of currency strategy at Commerzbank AG in Frankfurt. “While the Bank of Japan and government in general are fine with the weaker yen, they don’t want it to be so hefty or so quick as we have seen recently.”
Fed Dilemma

Fed Chair Janet Yellen’s dilemma over when to raise borrowing costs wasn’t made any clearer by conflicting employment data on Sept. 3.

While the U.S. jobless rate declined to a six-year low in September, the participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, fell to the lowest level since February 1978. Average hourly earnings were unchanged.

“The market will want to reassess the speed with which the Fed will be moving,” Valentin Marinov, Citigroup Inc.’s London-based head of European Group of 10 currency strategy, said in an interview on ForexSQ Television’s “On The Move” with Jonathan Ferro. “The Fed is moving towards the exit, will be hiking rates before long, and that should, over the longer term, continue to support the dollar.”

The dollar has jumped 7.4 percent in the past three months, the best performer in that period among 10 developed-nation currencies tracked by ForexSQ Correlation-Weighted Indexes. The yen weakened 0.7 percent and the euro declined 1.8 percent.

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