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Dollar Rises Against Yen Before Housing Data, Leading Indicators - (Bloomberg)

Posted by Chris Advincula on Aug 22, 2013 7:22:00 AM

The dollar advanced for a second day against the yen before U.S. data that economists said will show housing and a gauge of leading indicators improved, boosting the case for a reduction in Federal Reserve stimulus.

The Bloomberg U.S. Dollar Index rose to a two-week high after Fed minutes released yesterday showed most members were “broadly comfortable” with the plan to trim stimulus this year. India’s rupee slumped to a record and Malaysia’s ringgit fell to a three-year low as the decision by the Fed’s Open Market Committee boosted dollar demand. The euro advanced to a three-week high versus the yen after a report showed European services expanded in August for the first time in 19 months.

“We seem to be on track for an announcement at the FOMC meeting in September, the question is more how much are they going to reduce” debt purchases, said Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen. “That’s what’s occupying people right now” and supporting the dollar, he said.

The dollar rose 0.7 percent to 98.32 yen at 10:06 a.m. in London after advancing to 98.56, the strongest level since Aug. 15. The U.S. currency was little changed at $1.3354 per euro. The euro climbed 0.9 percent to 131.57 yen after reaching 131.63 yen, the highest since Aug. 2.

The U.S. Federal Housing Finance Agency will say its house price index climbed 0.6 percent in June after rising 0.7 percent the previous month, according to a Bloomberg News survey. The Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent in July, after being unchanged a month earlier, according to a separate Bloomberg survey.

Fed Tapering

The FOMC will probably reduce its monthly purchases of $85 billion in bonds at its Sept. 17-18 meeting, according to 65 percent economists in an Aug. 9-13 Bloomberg survey. The median estimate is a cut to $75 billion each month.

“Almost all committee members agreed that a change in the purchase program was not yet appropriate,” and a few said “it might soon be time to slow somewhat the pace of purchases as outlined in that plan,” according to the record of the Federal Open Market Committee’s July 30-31 gathering released yesterday in Washington.

The Bloomberg U.S. Dollar Index advanced 0.2 percent to 1,029.23 after rising to 1,029.62, the highest since Aug. 5.

The dollar appreciated 5.1 percent this year, the best performer after the euro of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 6.5 percent, while the yen fell 8.8 percent. 

Rupee Slides

India’s rupee slid 1.6 percent to 65.0638 per dollar after weakening to a record 65.56. The ringgit slipped 0.5 percent to 3.3095 after depreciating to 3.3228, the least since June 2010.

Global funds have cut their holdings of Indian debt by $10.1 billion since Fed Chairman Ben S. Bernanke first flagged the tapering on May 22, leaving the rupee vulnerable to the nation’s current-account deficit.

“Some of the reasons for the rupee’s fall are out of India’s control, which is probably why policy makers have stepped back a bit and let the rupee find it’s own equilibrium,” said Jonathan Cavenagh, a strategist at Westpac Banking Corp. in Singapore. “The longer-term issue is that India needs to suppress its current-account deficit, and that’s something policy makers should focus on.”

An index of euro-area services based on a survey of purchasing managers rose to 51 this month from 49.8 in July, London-based Markit Economics said. A composite index of services and manufacturing climbed to 51.7 from 50.5. Readings above 50 indicates expansion.  


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