Dollar Gains for Fifth Month as U.S. Economy Diverges From World

New York (Nov 30)  The dollar advanced for a fifth consecutive month as the U.S. moves closer to its first interest-rate increase since 2006, while policy makers from Japan, the euro-area and China pledge further stimulus to support growth.

The 18-nation euro slid versus the greenback, adding to its longest streak of losses since 2010, before the European Central Bank meets Dec. 4. The dollar climbed against Russia’s ruble, Norway’s krone and other currencies of commodity-exporting nations as oil extended its slump to a four-year low. The yen tumbled as Japanese Prime Minister Shinzo Abe called early elections after a report showed the nation slipped into a recession. China’s yuan fell this week after the central bank cut interest rates Nov. 21.

“It’s been a very good half-year for the dollar,” Greg Anderson, Bank of Montreal’s global head of foreign-exchange strategy in New York, said by phone. “I don’t think that we can have another month’s worth of rally in December like we had in September or November, so I would expect it to tail off, but I’m not looking for a hard reversal.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 trading partners, added 2.4 percent this month, completing the longest streak of gains since March 2013. The gauge closed at 1,106.90, its highest level since March 2009.

Market Moves

The U.S. currency advanced 5.6 percent to 118.63 yen and touched 118.98 on Nov. 20, a seven-year high. The euro rose 5 percent to 147.72 yen, the biggest monthly move since April 2013. The shared currency fell 0.6 percent to $1.2452.

South Korea’s won led gains among the dollar’s 16 major peers this week, adding 0.5 percent. New Zealand’s currency was the only winner of the month, appreciating 0.7 percent.

Switzerland’s franc strengthened before a vote tomorrow on requiring the central bank to hold at least 20 percent of its assets in gold. The currency traded at almost its 1.20 per euro cap, reaching 1.20113 yesterday.

The Norwegian krone led losses for the week, sliding 3.2 percent as oil prices tumbled further after the 12-nation Organization of Petroleum Exporting Countries kept its output target at 30 million barrels a day. Futures on West Texas Intermediate has fallen almost 40 percent from its 2014 high in June, closing yesterday at $66.15 a barrel.

Oil Markets

Other oil-exporting nations’ currencies followed, with the Mexican peso slipping to a more-than-two-year low and Brazil’s real declining 2 percent. Russia’s ruble lost 8.7 percent, its worst month in more than five years, as it touched an all-time low.

China’s yuan declined for the first month since April, snapping the longest streak of appreciation in more than three years, after the nation’s central bank reduced interest rates for the first time since 2012.

The People’s Bank of China lowered the one-year lending rate by 40 basis points to 5.6 percent on Nov. 21 and reduced the one-year saving rate 25 basis points to 2.75 percent. Manufacturing grew at the slowest pace since April this month, according to the median forecast of analysts surveyed before a gauge of activity released Dec. 1.

The yen was the biggest loser of November, sliding versus all except two of its 31 major counterparts. The currency tumbled after Prime Minister Abe announced he would seek a fresh mandate for his unprecedented program of stimulus and reform. Voters head to the polls on Dec. 14.

ECB Policy

Inflation slowed while the economy contracted for a second-consecutive quarter in the period through September, official reports showed this month.

“It’s lost its moorings,” said Kit Juckes, global strategist at Societe Generale SA in London. “Dollar-yen’s on its way up to 125 and way beyond that.”

The euro added 0.5 percent versus the dollar for the week, paring its monthly decline as officials weigh further stimulus.

ECB President Mario Draghi said last week that policy makers “will do what we must” to raise inflation as quickly as possible, boosting speculation the central bank will broaden its bond-buying program.

Price Action

Inflation in the region slowed to 0.3 percent in November, matching a five-year low, a report showed yesterday. Growth stalled at 0.2 percent in the third quarter, according to the median estimate of 36 analysts surveyed by Bloomberg News before a second reading of gross domestic product due Dec. 5.

The Federal Reserve is weighing whether the economy is strong enough to merit raising its benchmark interest rate next year from the record-low zero to 0.25 percent range it’s been in since 2008.

A report this week showed the U.S. economy expanded at a 3.9 percent annual rate, up from an initial estimate of 3.5 percent. American employers added more 228,000 workers in November, up from 214,000 in October, payrolls data released Dec. 5 is forecast to show. The unemployment rate will hold at 5.8 percent, the lowest since 2008, according to a separate survey.

“We look for another robust employment report,” BNP Paribas SA analysts led by Daniel Katzive and Vassili Serebriakov wrote in an e-mailed note yesterday. “We remain broadly bullish U.S. dollar and continue to run a euro-dollar short recommendation.” A short position is a bet an asset will decrease in value.

Source: Bloomberg