Bloomberg News

Dollar Climbs on Speculation Fed to Taper Stimulus; Rand Slides

June 01, 2013

The dollar gained versus all of its 16 most-traded peers for the first month since 2011 as speculation grew that stronger U.S. economic data will spur the Federal Reserve to reduce its unprecedented monetary stimulus.

The yen dropped against the dollar for an eighth month in the longest losing streak since 1996 as Japanese officials worked to end deflation. South Africa’s rand slid to a four-year low amid labor unrest. Fed Chairman Ben S. Bernanke said policy makers could cut the pace of its bond buying if they see indications of sustained economic improvement. U.S. payrolls grew by 165,000 jobs in May, data next week is forecast to show.

“May was characterized by a fixation with the idea of the Fed tapering bond purchases,” Shahab Jalinoos, a senior currency strategist at UBS AG in Stamford, Connecticut, said yesterday in a phone interview. “What the market focused on both with Bernanke and with the other speakers were any hints that there’s discussion developing on the tapering theme. The market is trying to be ultra-forward-looking.”

The dollar, which last gained for a month versus all of its major peers in September 2011, advanced 1.3 percent in May against the euro to $1.2999 in New York. The yen sank 3 percent to 100.45 per dollar, weakening past 100 on May 9 for the first time in four years. The Japanese currency lost 1.7 percent to 130.64 to the euro.

The yen has slumped 11 percent this year, the most among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes, as Japanese Prime Minister Shinzo Abe pledged to stem 15 years of deflation and the Bank of Japan doubled monthly bond purchases. The dollar has gained the most, 5.2 percent, while the euro has increased 3.5 percent.

Net Shorts

Futures traders increased their bets that the yen will weaken against the dollar to the most since July 2007. The difference in the number of wagers by hedge funds and other large speculators on a decline in Japan’s currency compared with those on a gain, known as net shorts, was 99,769 contracts on May 28, versus 95,186 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

The rand was the biggest loser in May among the greenback’s most-traded counterparts, followed by Australia’s dollar. The Danish krone lost the least, 1.3 percent, followed by the euro.

The currency of Africa’s biggest economy dropped 11 percent to 10.0915 per dollar and touched 10.2847, the weakest level since March 2009.

Labor Unrest

Mining strikes shaved about 0.5 percentage point off the nation’s gross domestic product last year, according to the Treasury. GDP growth slowed to an annualized 0.9 percent in the first quarter from 2.1 percent in the fourth, Statistics South Africa said this week.

“The rand is really the one that’s caught the eye for us in Group of 10” nations, Jerry Urwin, director of spot foreign-exchange in New York at Barclays Plc, said yesterday in a telephone interview. “It’s had one heck of a move.”

Australia’s dollar had the biggest monthly drop against its U.S. peer since September 2011 on wagers a slowdown in China, the nation’s biggest trade partner, will weigh on the economy and concern the U.S. central bank will cut back on stimulus that has boosted global markets. The International Monetary Fund this week lowered its growth forecasts for China to 7.75 percent this year, from an earlier estimate of 8 percent.

The Aussie tumbled 7.7 percent to 95.71 U.S. cents.

Fed Purchases

The Fed is buying $85 billion of Treasury and mortgage bonds each month to put downward pressure on borrowing costs under its quantitative-easing stimulus strategy, which tends to debase the dollar.

Bernanke told Congress on May 22 the U.S. central bank may decide at its next few meetings to taper purchases if it’s confident of sustained gains in the economy. At the same time, he said a premature tightening of monetary policy might imperil the economic recovery.

Some policy makers have signaled they favor slowing purchases. San Francisco Fed President John Williams said May 16 the central bank may begin reducing the pace of its purchases as early as this summer “if all goes as hoped.”

St. Louis Fed President James Bullard said May 21 the central bank should continue the purchases because they’re the best available option for policy makers to boost growth that is slower than expected. The Fed next meets June 18-19.

U.S. nonfarm payrolls swelled by 165,000 jobs in April, more than forecast, and the unemployment rate unexpectedly fell to 7.5 percent, the Labor Department reported last month. It will say June 7 that employers added the same amount of workers in May, economists forecast in a Bloomberg survey.

‘Mixed Data’

Government data this week also showed U.S. GDP grew less in the first quarter than previously estimated, 2.4 percent, and that consumer spending unexpectedly fell in April for the first time in almost a year.

“We’ve certainly had mixed data of late, but I think there’s still a compelling case the Fed could dial down its stimulus at one of its summer meetings,” Joe Manimbo, a market analyst at Western Union Business Solutions, a unit of Western Union Co., said yesterday in a phone interview from Washington. “That’s been the driving force of currency markets.”

BOJ Governor Haruhiko Kuroda told reporters in Tokyo last week that the central bank will conduct its debt purchases in a flexible manner, and that the recent volatility in government securities isn’t yet affecting the economy.

Japanese investors were net sellers of foreign debt in the week ended May 24, fanning concern the nation’s unprecedented monetary stimulus has yet to gain traction. They sold a net 1.12 trillion yen ($11 billion) of foreign bonds.

Japan’s 10-year government bond yields climbed to a 13-month high of 1 percent on May 23, from 0.55 percent on April 3, the day before the BOJ announced its bond-buying plans. They slipped to 0.86 percent yesterday.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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