Dollar Index Trades at Almost 6-Month High on Services Expansion – Bloomberg

The Dollar Index traded at almost
its highest level in six months as service industries in the
U.S. expanded in February at the fastest pace in a year, adding
to signs of economic acceleration.

The U.S. currency was supported after the Institute for
Supply Management’s non-manufacturing index exceeded forecasts,
fueling speculation the Federal Reserve may have scope to reduce
monetary stimulus earlier than projected. The yen erased losses
before the Bank of Japan (8301) convenes for a two-day meeting starting
tomorrow. Australia’s currency climbed versus the dollar as the
central bank kept interest rates on hold.

“ISM services were better than expected and markets are
higher,” Eric Viloria, a senior currency strategist at Gain
Capital Group LLC in New York, said in a telephone interview.
“The market is responding positively to the fundamentals. If
data improve, that reduces the likelihood of prolonged
quantitative easing, which would cause the dollar to
strengthen.”

The dollar fell 0.1 percent to 93.40 yen at 12:05 p.m. in
New York, after decreasing as much as 0.6 percent, the biggest
drop in almost a week. The greenback was little changed versus
the euro at $1.3023 after falling as much as 0.5 percent. The
yen added 0.1 percent to 121.64 per euro.

Dollar Measure

The Dollar Index, which Intercontinental Exchange Inc. uses
to track the greenback against currencies of six U.S. trading
partners, was little changed at 82.196. The gauge reached 82.509
on March 1, its highest level since Aug. 20.

The Swedish krona climbed to its strongest level in six
months versus the euro after Stockholm-based Swedbank said an
index based on responses from about 200 purchasing managers in
the services industry was a seasonally adjusted 54.6 in February
compared with a revised 52.6 the previous month.

The krona appreciated 0.4 percent to 8.3252 per euro, after
reaching the strongest since Sept. 3, and gained 0.3 percent to
6.3934 per dollar.

South Korea’s won strengthened the most in a month as
exporters repatriated income following the currency’s biggest
loss since Feb. 1 yesterday. The currency rose 0.6 percent to
1,087.04 per dollar after adding as much as 0.7 percent, its
biggest increase since Feb. 4.

Forint Falls

The Hungarian forint fell versus most of its 31 major
counterparts on speculation the country’s government will use
expanded powers at the central bank to deplete foreign-currency
reserves. It declined 0.2 percent to 229.48 per dollar after
weakening to 230.03, its lowest level since Sept. 6.

The yen weakened 10.9 percent in the past three months, the
worst performer among 10 developed market currencies measured by
Bloomberg Correlation-Weighted Indexes. It has dropped amid
speculation Prime Minister Shinzo Abe’s push to expand stimulus
will debase the currency. The prime minister’s nomination for
the next BOJ governor, Haruhiko Kuroda, said yesterday the
central bank will do whatever is needed to end 15 years of
deflation.

Options traders are the least bullish on the dollar versus
the yen since Nov. 14, according to 25-delta option risk
reversal rates. Traders are paying a 0.49 percent premium for
dollar calls, or the right to buy the greenback versus the
Japanese currency, relative to calls, which allow for purchases.
That is down from the 2012 high of 1.50 percent reached on Dec.
13.

Pimco Forecast

Pacific Investment Management Co.’s Bill Gross said the yen
is likely to weaken to 100 per dollar on concern that stimulus
measures by the Bank of Japan will debase the currency.

Gross, speaking with Erik Schatzker and Stephanie Ruhle on
Bloomberg Television’s “Market Makers,” also said the pound will
fall on so-called quantitative easing. Look to the U.S. dollar
and euro for relative strength, he said.

The yen is estimated to weaken to 95 to the greenback by
the end of the year, while the euro is forecast to be about
unchanged at $1.29, according to the median estimate of
economists surveyed by Bloomberg.

The Institute of Supply Management’s non-manufacturing
index increased to 56 last month from 55.2 in January, the
Tempe, Arizona-based group said today. Economists projected the
guage would be little changed at 55, according to the median
estimate in a Bloomberg survey. Readings above 50 signal
expansion.

Aussie Rebound

The so-called Aussie rose from an almost eight-month low
reached yesterday after the Reserve Bank of Australia left its
overnight cash-rate unchanged at 3 percent.

Governor Glenn Stevens said in a statement that growth in
2012 was led by “very large increases in capital spending in
the resources sector,” while reiterating that the inflation
outlook “would afford scope to ease policy further, should that
be necessary.”

“The RBA was a little bit more upbeat on the outlook for
capital expenditure and it continued to say that past easing is
having an impact on the economy,” said Khoon Goh, a Singapore-
based foreign-exchange strategist at Australia & New Zealand
Banking Group Ltd. “The market has taken Stevens’s comments on
resources spending positively and that’s why we’ve seen the
Aussie move higher.”

The Aussie snapped a three-day decline versus the dollar,
gaining 0.4 percent to $1.0237. It dropped to $1.0115 yesterday,
the lowest since July 12.

To contact the reporter on this story:
Joseph Ciolli in New York at
jciolli@bloomberg.net

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