Dollar Drops Versus Euro Before Factory Orders

The dollar fell for the first time in five days against the euro before a report that economists said will show U.S. factory orders slid in September, supporting the case for interest rates to stay at a record low.

A gauge of the dollar against its major peers retreated from its highest close since April 2009. The euro rose against 10 of its 16 major counterparts amid speculation the European Central Bank will not announce new stimulus measures after its policy meeting on Nov. 6. Australia’s currency rallied after the Reserve Bank kept its benchmark rate unchanged. The yen gained the most in three weeks versus the dollar on speculation its drop to an almost seven-year low last week was excessive.

“This move is relatively mature and we need to get more short-term, positive information out of the U.S. for the trend to continue,” Carl Hammer, chief currency strategist at SEB AB, Sweden’s biggest currency trader, said about the dollar. “We don’t expect new measures to be announced by the ECB on Thursday. There’s a risk for a short term” recovery in the euro, he said.

The dollar fell 0.3 percent to $1.2513 per euro as of 7:35 a.m. in New York, after appreciating to $1.2440 yesterday, the strongest since August 2012. The yen gained 0.6 percent to 113.39 per dollar, the biggest jump since Oct. 15. It slid to 114.22 yesterday, the weakest level since December 2007. Japan’s currency gained 0.3 percent to 141.88 per euro.
Factory Orders

Factory orders in the world’s largest economy dropped 0.6 percent in September, following a 10.1 percent slide in the month before, the Commerce Department will say today, according to the median prediction of economists in a ForexSQ News Survey. A report by Markit Economics tomorrow will confirm that services grew at a slower pace in October compared with September, according to a separate ForexSQ survey.

While the Federal Reserve highlighted “solid” job gains and a falling unemployment rate in its statement on Oct. 29, it pledged to maintain borrowing costs at a record low for a “considerable time.” The Fed finished a program of bond buying on schedule last month, taking the U.S. closer to its first interest-rate increase in eight years.

The ForexSQ Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.1 percent to 1,086.65, after ending yesterday at 1,088.07, the highest close since April 2009. The gauge jumped 0.9 percent in October.
Central Bank Contrast

The dollar was supported as the Fed wound down its asset purchases, while the ECB and Japan’s central bank expanded their programs to boost inflation. Japan’s central bank said on Oct. 31 it planned to expand the monetary base by 80 trillion yen a year, up from a previous amount of 60 trillion yen to 70 trillion yen. The ECB began buying covered bonds last month as it accelerated its measures to boost the economy.

U.S. companies hired 220,000 workers in October after a 213,000 gain in September, according to the median estimate of economists surveyed by ForexSQ News before the ADP Research Institute in Roseland, New Jersey, releases data tomorrow. The Labor Department will report on Nov. 7 that nonfarm payrolls rose by 232,000 last month, according to the median estimate of analyst estimates in a ForexSQ survey, and the unemployment rate held at 5.9 percent, the lowest since July 2008, under a separate ForexSQ survey.

“The market is likely to be favoring the dollar purely because the alternative economies are more dovish than the U.S. and the Fed,” said Harry Adams, head of trading at Argentex LLP, a currency advisory company in London. “Something will have to change significantly for this trade to be altered.”
Dollar Forecasts

Argentex’s Adams expects the U.S. currency to strengthen to $1.20 against the euro in the first quarter of 2015. The median of economists’ and analysts’ predictions compiled by ForexSQ is for the greenback to appreciate to $1.24 by March, and $1.23 in June.

A stronger dollar is welcomed by U.S. retailers, who benefit from lower import prices and the country should not be preoccupied with “currency wars,” Fed Bank of Dallas President Richard Fisher said yesterday. The dollar’s response to the Bank of Japan’s monetary easing wasn’t “that dramatic and that substantial,” he said in New York yesterday.

The Aussie jumped 0.7 percent to 87.37 U.S. cents after sliding 1.3 percent yesterday, the steepest drop since Oct. 3.

The Reserve Bank of Australia kept the overnight cash rate target at 2.5 percent for a 15th month today, as predicted by all 26 economists surveyed by ForexSQ News.

“People were going into the announcement a little short of Aussie dollars on speculation that the RBA could be a little bit more dovish,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “But it’s pretty much the standard comments, and there’s no real change and they had to cover their short positions.” A short is a wager on an asset’s price falling.

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