Home Forex Market News Dollar Falls From 14-Month High on Unexpected Drop in Production

Dollar Falls From 14-Month High on Unexpected Drop in Production

The dollar fell from a 14-month high against its major peers after data showed U.S. industrial production unexpectedly declined in August.

The Bloomberg Dollar Spot Index climbed earlier on speculation the Federal Reserve will change its stance this week on keeping rates low for a “considerable” time after ending bond purchases. U.S. Treasury yields fell for the first time in eight days, damping the appeal of dollar-denominated assets. A gauge of emerging-market currencies dropped for a sixth day.

Data are “obviously hurting the market, and there’s also some correction in the Treasury market pushing yields (USGG10YR) lower and weighing on the dollar,” said Masafumi Takada, a New York-based director at BNP Paribas SA. “The market has been positioning long dollar against yen and euro for quite a while now, so reducing a bit before the event.” Long positions are bets a currency will gain.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell as much as 0.1 percent to 1,049.31 after climbing earlier to 1,052.14, the highest since July 2013. It traded little changed at 1,050.86 at 12:41 p.m. New York time.

The dollar strengthened 0.2 percent to $1.2934 per euro and declined 0.1 percent to 107.20 yen. The euro fell 0.4 percent to 138.65 yen. Japanese financial markets were shut today for a national holiday.
Aussie Slumps

Australia’s currency dropped as much as 0.6 percent to 89.84 U.S. cents, the lowest since March 12, after the weakest growth in China, the nation’s biggest trade partner, since the global financial crisis. The Aussie traded later pared its loss to 90.26 cents.

“The risks now are building for the Australian dollar, not just from the U.S. higher yields, but from the Chinese angle as well,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London. “We’ve seen the Aussie already moving below 90, giving quite a bearish signal. It’s an important week for global risk-assessment.”

Chinese industrial output rose 6.9 percent from a year earlier in August, the statistics bureau said Sept. 13. That was down from 9 percent in July and the slowest pace outside the Lunar New Year holiday period of January and February since December 2008, based on previously reported data compiled by Bloomberg.
U.S. Economy

Output at U.S. factories, mines and utilities fell 0.1 percent in August after a 0.2 percent gain the prior month that was smaller than previously reported, Fed data showed. The median forecast in a Bloomberg survey of 79 economists called for a 0.3 percent rise.

Yields on benchmark U.S. 10-year notes fell two basis points, or 0.02 percentage point, to 2.59 percent after touching a two-month high of 2.62 percent.

A gauge of manufacturing in the New York (EMPRGBCI) region rose more than forecast this month, another report showed. The Fed Bank of New York’s Empire State index climbed to 27.54, from 14.49 last month. Readings greater than zero signal expansion. A Bloomberg survey of 50 economists called for a reading of 15.95.

There’s a 78 percent chance the Fed will raise its target for overnight lending between banks from a range of zero to 0.25 percent by its September 2015 meeting, fed funds futures data compiled by Bloomberg show today.

The policy-setting Federal Open Market Committee begins a two-day meeting tomorrow amid speculation it will change its public guidance on the path of interest rates. The central bank has said since March rates would stay low for a period after it completes a bond-buying program under the quantitative-easing stimulus strategy. The purchases are on track to end this year.

The Fed has held its benchmark interest-rate target in a range of zero to 0.2 percent since 2008 to support the economy. It last raised interest rates in 2006.
‘Negative Reaction’

“The strength of the dollar is something we’ve been anticipating,” Dan Morris, a global investment strategist at TIAA-CREF Asset Management, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro in London. “You do see a negative reaction on the part of emerging markets when those currencies do start to weaken against the dollar, with cash flowing back to the U.S.”

A Bloomberg index of 20 developing-nation currencies sank 0.3 percent to 88.95, its lowest level on a closing basis since February, as the prospect of rising U.S. interest rates hurt the appeal of higher-yielding assets.

Russia’s ruble slumped 1.4 percent to 38.3350 per dollar, and Malaysia’s ringgit dropped 1 percent to 3.2290.

“The overarching theme in terms of weakness in emerging markets of late has been the interest rate-currency nexus: the substantial move of the dollar and U.S. interest-rate expectations,” John Lomax, an emerging-market strategist at HSBC Holdings Plc, said by phone from London.

South Africa’s rand gained 0.1 percent to 11.0071 per dollar versus the greenback before the nation’s central bank meets on Sept. 18.

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