May 5 (Bloomberg) -- The dollar traded near the lowest level against the euro in a month on reduced demand for safety before a report forecast to show the contraction in the U.S. service industry slowed last month.
South Africa’s rand rose yesterday versus the yen to the highest level since October and Brazil’s real gained as an unexpected increase in U.S. pending home resales in March encouraged investors to buy higher-yielding assets. Mexico’s peso erased losses since the flu outbreak began last week after authorities said most businesses will reopen in two days.
“There are signs in our flow data supportive of the rally in risky currencies,” said Robert Blake, head of strategy for North America in Boston at State Street Global Markets LLC, which has $11.3 trillion in assets under custody. “Real-money investors are still buying emerging-market and commodity currencies.”
The dollar traded at $1.3408 per euro at 6:16 a.m. in Tokyo, after declining 1 percent yesterday and touching $1.3425, the weakest level since April 6. The yen was at 98.78 per dollar, following a 0.3 percent gain yesterday. Japan’s currency fetched 132.44 per euro, after falling 0.7 percent yesterday and touching 132.88, the weakest level since April 14.
Japan’s currency slid as much as 3.5 percent to 12 versus the rand, the weakest level since Oct. 6, and 2.3 percent to 46.67 against the real on bets a 3.4 percent rally in U.S. stocks yesterday will prompt investors to resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where rates are higher.
Currency Volatility
Traders’ expectations of fluctuation in major currencies declined to the lowest level in eight months, encouraging investors to engage in carry trades. Implied volatility on seven major currencies fell to 13.77 percent yesterday, the lowest since September, according to a JPMorgan Chase & Co index.
Currency volatility can wipe out profits. The target lending rate is 0.1 percent in Japan and zero to 0.25 percent in the U.S., compared with 8.5 percent in South Africa and 10.25 percent in South Africa.
The Dollar Index, which the ICE uses to track the greenback against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona, fell 0.6 percent to 84.067 yesterday. It lost 5 percent in the past two months.
The Institute for Supply Management’s index of non- manufacturing businesses, which make up almost 90 percent of the economy, rose to 42.2 last month from 40.8 in March, according to the median forecast of 65 economists surveyed by Bloomberg. Readings below 50 signal contraction. The Tempe, Arizona-based group is scheduled to release the data at 10 a.m. New York time. more...
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