Dollar Drops to 7-Week Low to Euro Before Fed; Aussie Holds Loss


The dollar fell to a seven-week low versus the euro before the Federal Reserve releases minutes of its January meeting as investors look for the stance of policy makers on recent economic data.

The Bloomberg Dollar Spot Index headed for its lowest close since December before data today forecast to show U.S. housing starts and building permits fell in January. The pound traded near the highest in more than four years before figures forecast to show the U.K. jobless rate held at the lowest since March 2009.Australia’s dollar maintained losses as Asian stocks halted a three-day gain and ahead of a gauge of Chinese manufacturing tomorrow forecast to show continued contraction.

“The dollar is being sold especially against the euro,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “We need to remain wary of the downside risks to U.S. data. Investors will be looking for Fed’s view on the economy.”

The dollar was little changed at $1.3761 per euro at 6:55 a.m. in London from yesterday, after earlier touching $1.3773, weakest since Jan. 2. The pound fetched $1.6694 from $1.6684, after reaching the highest since November 2009 at $1.6823 on Feb. 17.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was at 1,016.99 from 1,017.34 yesterday, set for the lowest close since Dec. 17.

Japan’s currency added 0.1 percent to 102.23 per dollar. The yen rallied 0.1 percent to 140.66 per euro from yesterday, when it touched 141.03, the weakest since Jan. 29.

Housing Market

U.S. housing starts probably fell 4.9 percent to a 950,000 annualized rate in January after December’s 9.8 percent drop, according to the median estimate of economists surveyed by Bloomberg before the Commerce Department data today. Economists in a separate Bloomberg poll predict building permits decreased 1.6 percent to a 975,000 pace last month from December.

The National Association of Home Builders/Wells Fargo sentiment gauge slid to 46 this month, from 56 in the prior period, a report showed yesterday. A reading of 50 means the same number of respondents report poor conditions as good.

The Fed Bank of New York’s Empire State manufacturing index fell to 4.48 in February from 12.51 the month before.

The U.S. central bank announced in December it would start paring stimulus by cutting its monthly bond purchases by $10 billion per month, and policy makers decided on another reduction of the same size last month, to $65 billion.

U.K. Labor

In the U.K., the unemployment rate held at 7.1 percent in December from the previous month, matching the lowest since March 2009, the median estimate of economists polled by Bloomberg shows before the Office for National Statistics releases the data today.

The Bank of England will today release minutes of its Feb. 5-6 meeting when policy makers kept the interest rate at a record-low 0.5 percent. Governor Mark Carney last week put spare capacity at the center of interest-rate policy now that unemployment is close to breaching the 7 percent threshold for considering a rate increase, two years earlier than officials projected when forward guidance was introduced in August.

“We may see another tick down in unemployment to the 7 percent level,” Mark Beecroft, the London-based chairman and senior market analyst at Saxo Capital Markets U.K. Ltd. said in a video posted on the company’s website. “I continue to have faith in the strength of the U.K. recovery. That is going to become incredibly startling in profile compared to the flat-line euro zone recovery as the year goes on. So I’d really be pretty positive for sterling over the euro.”

Risk Aversion

The Aussie was little changed at 90.28 U.S. cents from yesterday, when it reached 90.81, the highest since Jan. 13. New Zealand’s dollar bought 83.23 U.S. cents from 83.05 yesterday, when it dropped 0.7 percent.

The MSCI Asia Pacific Index of stocks declined as much as 0.3 percent earlier today.

A flash estimate of China manufacturing PMI was unchanged at 49.5, HSBC and Markit Economics will say tomorrow according to economists in a Bloomberg survey. A reading below 50 indicate contraction. China is the biggest trading partner of both Australia and New Zealand.

“The yen is probably the last G-10 currency to be correlated with risk,” said Sue Trinh, a senior currency strategist at Royal Bank of Canada in Hong Kong. “Cross yen will be driven only by general risk appetite. Dollar-yen will be driven by how the U.S. macro picture evolves.”