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Dollar Declines as Investors Seek Higher Yields; Pound Advances

April 8 (Bloomberg) -- The Bloomberg Dollar Spot Index dropped to the lowest level in more than five months as a decline in currency volatility spurred investors to seek out higher-yielding assets.

The U.S. currency fell for a second day against the euro after a U.S. job report last week showed employers added fewer workers than economists forecast, damping speculation the recovery is gaining momentum. Australia’s dollar strengthened along with the currencies of New Zealand and South Africa. The yen rose as the Bank of Japan refrained from adding extra stimulus at a policy meeting. The pound jumped the most in eight weeks after U.K. industrial production accelerated.

“There certainly has been more interest again in emerging markets, suggesting that many investors are again looking out for yield and that’s clearly a risk-on scenario that is dollar- negative,” said Jane Foley, senior foreign-exchange strategist at Rabobank International in London. “We can also blame the payrolls a little bit. It wasn’t as strong as some people had been anticipating.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major counterparts, declined 0.4 percent to 1,011.10 at 7:10 a.m. in New York after falling to 1,010,88 the lowest level since Oct. 31.

The dollar dropped 0.2 percent to $1.3766 per euro after sliding 0.3 percent yesterday. The greenback depreciating 0.5 percent to 102.56 yen after sliding to 102.52, the weakest since March 28. Japan’s currency rose 0.4 percent to 141.15 per euro.

Currency Volatility

The JPMorgan Group-of-Seven Volatility Index declined to 6.75 percent, the lowest level since August 2007, before being little changed 6.78 percent.

The Fed will tomorrow release the minutes of its March 18-19 meeting, when policy makers reduced monthly bond purchases by $10 billion to $55 billion. Fed Chair Janet Yellen said the central bank may start to increase interest rates “around six months” after ending its asset-buying program.

U.S. payrolls rose 192,000 last month, less than 200,000 gain predicted by economists in a Bloomberg News survey, the Labor Department reported on April 4.

“The near-term risks to the U.S. dollar are biased to the downside especially against emerging-market and high-beta Group- of-10 currencies,” Mark McCormick, a macro strategist at Credit Agricole SA in New York, wrote in a client note published today. “We think it is best to buy U.S. dollars into rallies to position for U.S. dollar strength in the coming months.”

Fed Minutes

The Australian dollar rose 0.6 percent to 93.26 U.S. cents after reaching 93.41 cents, the highest since Nov. 20. New Zealand’s currency jumped 0.7 percent to 86.66 cents. The South African rand gained 0.6 percent to 10.461 per dollar after appreciating to 10.4261, the strongest since Jan. 1.

The yen rose versus 12 of its 16 major peers as the Bank of Japan left its target for the yearly expansion of the monetary base at 60 trillion yen to 70 trillion yen. Policy makers next meet April 30.

“What people realize perhaps is that the meeting at the end of the month is probably more significant because that’s when you get updated inflation and growth forecasts,” said Kiran Kowshik, a currency strategist at BNP Paribas SA in London. “People are maybe thinking perhaps that will be better timing” to reduce yen positions, he said.

The prospect of further stimulus will probably spur investors to boost bets the yen will weaken and the currency may depreciate to 110 per dollar by year-end, Kowshik said.

Pound Advances

The pound rose by the most in eight weeks versus the dollar as the industrial-production data spurred bets the Bank of England will hasten plans to raise interest rates.

Sterling appreciated to the strongest level in a month against the euro after a separate report showed wage growth accelerated to the fastest pace in almost seven years. Factory output rose 0.9 percent in February, compared with a 0.3 percent growth estimate of analysts in a Bloomberg News survey.

“The market is becoming more confident on the outlook for sterling,” Rabobank’s Foley said. “There is a large consensus in the market regarding when the Bank of England will next move policy.”

The pound advanced 0.6 percent to $1.6711, the biggest gain since Feb. 12. The U.K. currency rose 0.4 percent to 82.38 pence per euro after reaching 82.33 pence, the strongest level since March 6.

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