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By Bloomberg

The dollar retreated, after a gauge of the currency had its strongest three-quarter gain on record, amid bets the Federal Reserve will raise interest rates slowly.

The U.S. currency surged at least 9 percent against all its major developed peers since the end of June as more than two dozen central banks, including those in Australia, Canada and Europe, eased policy this year. The dollar pared gains on Wednesday after a Chinese manufacturing gauge rebounded in March, damping demand for the U.S. currency as a haven.

“There’s some concern about the actual strength of the underlying economy and how far the Fed will increase interest rates, if at all,” said Derek Mumford, director at Rochford Capital, a currency risk-management company in Sydney. “Longer term, it’s down to what’s the alternative to the U.S. dollar.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, fell 0.3 percent to 1,197.59 at 1:23 p.m. in Tokyo. It closed at 1,222.12 on March 13, the highest level based on data back to 2004.

The dollar dropped 0.5 percent to 119.58 yen, retreating from a 7 1/2-year high of 122.03 yen reached on March 10. The greenback weakened 0.5 percent to $1.0783 per euro. It touched $1.0458 on March 16, the strongest since January 2003.

China’s manufacturing Purchasing Managers’ Index was 50.1 last month, from 49.9 in February, according to the statistics bureau and the China Federation of Logistics and Purchasing in Beijing. Numbers above 50 signal expansion.

Kiwi Slides

Investors will be looking at the monthly U.S. payroll report on April 3 for clues on the timing of a rate increase. The data may disappoint the market and hurt the dollar, Steven Englander, the global head of Group-of-10 currency strategy at Citigroup Inc. in New York, wrote in a note.

The dollar is vulnerable because the market is still positioned for further gains, and a weak payroll report would confirm emerging concerns that a slowdown in the first-quarter wasn’t an aberration, according to Englander.

U.S. employers added 245,000 jobs in March, according to a Bloomberg News survey. Citigroup forecasts a gain of 220,000 and an outcome below that could lead to a selloff in the dollar, according to its report.

“The flow of U.S. data lately has not been too encouraging,” said Imre Speizer, a markets strategist at Westpac Banking Corp. in Auckland. “There have been more disappointments than positive surprises, and so we expect probably a period of consolidation for the U.S. dollar.”

Dollar Revision

ABN Amro Group NV and BNP Paribas SA raised their dollar forecasts against the euro to say they see it rising past parity for the first time since 2002, acting just two days after the Fed signaled markets had been too aggressive in pricing in higher rates. Commonwealth Bank of Australia boosted its projections for the U.S. currency against a range of peers.

Fed Chair Janet Yellen said last week that rates will probably be raised in 2015 and made the case for a cautious approach to subsequent increases that will keep borrowing costs low for years to come.

New Zealand’s dollar fell earlier after its Australian counterpart failed to weaken past N$1.0150, said Raiko Shareef, a markets strategist in Wellington at Bank of New Zealand Ltd. The Aussie slid to NZ$1.0157 on Monday, the lowest since the two currencies were allowed to float freely in the 1980s.

The kiwi was little changed at 74.75 U.S. cents, after sliding as much as 0.4 percent. Australia’s dollar advanced 0.3 percent to NZ$1.0208 on Wednesday.

The Reserve Bank of New Zealand may have intervened in March after the currency rose to levels that prompted policy makers to sell a net NZ$521 million ($390 million) in August, according to ABN Amro and Morgan Stanley.