Dollar Extends Best Streak Versus Yen Since 2001; Pound Declines
New York (Aug 1) The dollar rose for an eleventh day versus the yen, the longest run of gains since 2001, as the U.S. currency was propelled higher by speculation the Federal Reserve is moving toward raising interest rates.
The Bloomberg Dollar Spot Index rose to the highest level since March as economists said data today will show U.S. employers boosted jobs and increased wages, lessening the need for accommodative monetary policy. An index that tracks the performance of 20 developing-nation currencies against the greenback fell to the lowest since March and Australia’s dollar weakened. The pound fell to a seven-week low after a gauge showed U.K. manufacturing grew less than economists forecast.
“Momentum and upside risks are building for the dollar versus the yen,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Another solid payrolls report today will show the underlying pace of U.S. employment growth continues to strengthen. The market is starting to think more seriously about the prospect of Fed tightening in the first half of next year.”
The dollar rose 0.2 percent to 102.96 yen at 7:14 a.m. New York time, extending this week’s gain to 1.1 percent. The U.S. currency was little changed at $1.3394 per euro, up 0.3 percent over five trading days and set for its first three-week gain since the period ended May 23. The euro appreciated 0.2 percent to 137.90 yen.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose 0.1 percent to 1,023.07 after touching 1,023.31, the highest level since March 20. It jumped 0.9 percent this week as the dollar strengthened against all of its 16 major counterparts.
The dollar will appreciate to 106 yen by the end of the year, Hardman said, citing Bank of Tokyo-Mitsubishi UFJ forecasts. A break above the 103 level would give the U.S. currency further momentum, Hardman said, while predicting the dollar would also strengthen toward $1.30 versus the euro.
Signs the U.S. economy is strengthening have boosted the dollar against most of its major peers in the past month. The greenback strengthened 2.4 percent in the period, the best performer of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 0.8 percent, while the euro was little changed.
U.S. employers added 230,000 workers in July and the jobless rate stayed at an almost six-year low of 6.1 percent, according to Bloomberg surveys before today’s Labor Department data. The personal consumption expenditure deflator, an inflation measure preferred by the Fed, rose an annual 1.7 percent in June after climbing 1.8 percent in May, which was the biggest gain since 2012, a separate survey showed.
The premium on options to buy the dollar against the yen over those giving the right to sell rose to an eight-month high yesterday. The 25-delta one-month risk reversal rate climbed as high as 0.17 percentage point, the most since November.
U.K. manufacturing grew at the slowest pace in a year, Markit Economics said today. An industry index slipped to 55.4 from a revised 57.2 in June, the London-based data provider said. Analysts forecast a reading of 57.2 for July, from a previously reported 57.5 in June, according to the median estimate in a Bloomberg survey.
The pound fell as much as 0.4 percent to $1.6822, the lowest level since June 12. It has weakened against the dollar on 12 of the past 13 days.
Australia’s dollar headed for its biggest weekly loss since May after a Chinese Purchasing Managers’ Index for manufacturing from HSBC Holdings Plc and Markit showed a final reading of 51.7 in July, less than its preliminary figure of 52.
The Aussie rose briefly after an official report on manufacturing in China, the world’s second-biggest economy, showed last month’s expansion was the fastest in more than two years. China is Australia’s biggest trading partner.
“Perhaps being U.S. payrolls day, where no one wants to be short USD, the AUD only briefly spiked” after the official Chinese data, said Annette Beacher, the Singapore-based head of Asia-Pacific research at TD Securities Inc. “Clearly, ‘sell on rallies’ remains live,” Beacher wrote in an e-mailed note to clients today. A short position is a bet an asset will decline in value.
The Aussie fell 0.1 percent to 92.82 U.S. cents after rising as much as 0.2 percent. It has slumped 1.2 percent this week, the most since the period ended May 23.
Most Asian currencies fell against the dollar as investors preferred to hold the greenback on signs the strengthening U.S. economy may prompt the Fed to tighten policy sooner than analysts forecast. Developing-nation currencies also weakened before an International Swaps & Derivatives Association meeting at 11 a.m. New York time to determine whether credit-default swaps linked to Argentina have been triggered by a failure-to-pay credit event.
A gauge that tracks the performance of 20 developing-nation currencies versus the dollar fell 0.4 percent to the lowest level since March.
The won declined 0.9 percent to 1,037.10 per dollar at the close in Seoul, the biggest drop since Jan. 30. The Philippine peso slid 0.7 percent to 43.785 per dollar and Malaysia’s ringgit weakened 0.5 percent to 3.2120.