TOKYO, Oct 31 — The dollar held a three-day gain against the euro before US data forecast to show jobless claims decreased and manufacturing expanded.

The greenback was still poised for monthly declines against most major peers as concern the partial government shutdown will affect the economy underpins the Federal Reserve’s decision to keep buying US$85 billion (RM267 billion) of bonds a month. The yen held near a two-week low ahead of a Bank of Japan meeting today at which policy makers are expected to maintain record stimulus. New Zealand’s dollar fell after the central bank signaled that currency strength may provide scope to delay interest-rate increases.

“The people who were expecting a more dovish statement from the Fed are unwinding their positions,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “The dollar was bought back, but whether it can sustain those gains will depend on the economic data.”

The dollar was little changed at US$1.3733 per euro as of 11:39am in Tokyo from yesterday, after having strengthened 0.5 per cent in the previous three sessions. It was at ¥98.43 from ¥98.51 yesterday, when it reached ¥98.68, the highest since October 17. For the month, the greenback was set for a 1.5 per cent drop against the 17-nation euro and a 0.2 per cent advance versus the yen.

Japan’s currency added 0.1 per cent to 135.17 per euro from yesterday. New Zealand’s kiwi dollar fell 0.2 per cent to 82.53 US cents from yesterday, when it touched 81.93, the weakest level since September 17.

The Bloomberg US Dollar Index, which monitors the greenback against 10 major counterparts, was at 1,006.93 from 1,007.37 yesterday, the highest close since October 16.

Recovery signs

First-time applications for jobless benefits probably decreased to 338,000 in the week ended October 26 from 350,000 the previous week, according to the median estimate of economists surveyed by Bloomberg News ahead of the data today.

Dollar holds ground on strength of jobs and manufacturing numbers. — Reuters file pic

Economists in a separate Bloomberg poll estimate the Institute for Supply Management will say tomorrow its manufacturing index was at 55 in October from 56.2 last month, which was the highest since April 2011. Readings above 50 indicate growth.

Weaker inflation

Weaker-than-forecast consumer-price data yesterday gave the central bank more flexibility to maintain stimulus. The cost of living rose 1.7 per cent in the 12 months through September, excluding food and energy, the Labour Department reported. A Bloomberg survey estimated a 1.8 per cent increase. The Fed’s inflation target is 2 per cent.

The Federal Open Market Committee yesterday kept unchanged its monthly purchases of US$45 billion of Treasuries and US$40 billion of mortgage-backed securities, saying in a statement it saw “improvement in economic activity and labour market conditions”.

It repeated it would “await more evidence that progress will be sustained before adjusting the pace of its purchases”.

Economists forecast no change to the Fed’s bond buying yesterday. The FOMC won’t reduce the pace of purchases until its March 18-19 meeting, according to an October 17-18 Bloomberg survey.

The 10-year Treasury yield was little changed at 2.53 per cent from yesterday, when it rose three basis points. The yield on equivalent Japanese government bonds slid to 0.585 per cent, the lowest since May 9.

“The market got ahead of itself expecting a dovish Fed and now it’s taking a breather after the decision,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo.

BoJ stimulus

The BoJ buys more than ¥7 trillion (RM224.9 billion) of Japanese government bonds every month in its bid to stoke annual inflation of 2 per cent. The central bank will also release updated forecasts on Japan’s growth and inflation.

Governor Haruhiko Kuroda and his policy board forecast in July that consumer prices excluding fresh food would climb 1.3 per cent in the year starting April 2014, once the effects of a planned increase in sales tax are stripped out. The 5 per cent consumption levy is scheduled to rise to 8 per cent in April and to 10 per cent in 2015.

“The BoJ is likely to take the stance that they are preparing the economy for the planned sales-tax increase,” said Gaitame’s Gervaise. “That is largely priced in by the market, so unless there is a clear signal that the BOJ will be ahead of the curve in easing policy, the yen reaction may be quite limited.”

Biggest decline

The yen has fallen 2.9 per cent in the three past months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after the Canadian dollar’s 4.3 per cent drop. The euro has gained 1.3 per cent in the same period, while the New Zealand dollar has risen 1.4 per cent.

In New Zealand, the central bank left the official cash rate unchanged at a record-low 2.5 per cent today, in line with economists’ estimates. Sustained strength in the kiwi holding inflation in check gives the bank “greater flexibility as to the timing and magnitude of future increases” in interest rates, Reserve Bank of New Zealand Governor Graeme Wheeler said in a statement released in Wellington today.

“The statement, particularly the exchange-rate rhetoric, strongly hints at the possibility of a delay in RBNZ tightening expectations,” said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. “This may weigh on the New Zealand dollar.” — Bloomberg