Dollar Posts Weekly Gain as Payrolls Spur Fed Rate Bets

Washington (July 4)  The dollar posted its first weekly gain in four as signs of an accelerating U.S. recovery spurred speculation the Federal Reserve will bring forward the timing of interest-rate increases.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, headed for a 0.2 percent weekly increase after data yesterday showed U.S. nonfarm payrolls rose more than economists estimated and the unemployment rate fell to an almost six-year low. Sweden’s krona weakened a fourth day as industrial production slumped. The ringgit climbed to its highest since November on bets Malaysian interest rates will rise. Expectations for currency swings reached a record low yesterday.

“Payrolls is always the figure the market looks to for depth of recovery and that obviously is important to the Fed,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “It’s really a question of when the dollar is going to put in a sustained burst higher. The moment hasn’t yet arrived where we’ll see a sustained recovery but it’s one step closer.”

The Bloomberg Dollar Spot Index was little changed at 1,007.40 at 4 p.m. New York time. The U.S. currency fell 0.1 percent to 102.07 yen from yesterday, when it touched 102.27, the highest since June 18. The dollar slipped 0.1 percent to $1.3593 per euro. The 18-nation euro weakened 0.2 percent to 138.75 yen.

Volatility Falls

Foreign-exchange volatility ebbed, with JPMorgan Chase & Co.’s gauge tracking Group of Seven nations dropping 23 basis points, or 0.23 percentage point, to 5.11 percent yesterday, the lowest on record on a closing-market basis in data back to 1992. The rate rose to 5.17 percent today.

The dollar headed for a weekly advance versus most of its Group of 10 peers. U.S. Labor Department figures yesterday showed employers added 288,000 workers in June, more than the 215,000 median forecast of economists surveyed by Bloomberg News. The jobless rate dropped to 6.1 percent from 6.3 percent in May.

“The payrolls report confirmed that from a macroeconomic perspective the U.S. economy is growing,” said Yasuhiro Kaizaki, a vice president for global markets in New York at Sumitomo Mitsui Trust Bank. “Based on fundamentals, recent dollar buying should continue.”

Treasuries declined yesterday, while the Dow Jones Industrial Average (INDU) rose above 17,000 for the first time. Financial markets in the U.S. are closed today for Independence Day.

Fed Tapering

The Fed trimmed monthly buying to $35 billion from $85 billion last year, while holding the key interest-rate target in a range of zero to 0.25 percent since 2008 to support the economy.

The dollar has fallen 3.7 percent in the past year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen has dropped 5.8 percent in the period, the worst performer after the Swedish krona, which plunged 6.4 percent.

Swedish industrial production contracted 3.2 percent in May, after growing a revised 2.8 percent in April, according to Statistics Sweden. A Bloomberg survey of economists predicted a 0.1 percent increase.

The krona dropped the most in a year versus the dollar yesterday after the Riksbank unexpectedly cut its benchmark rate by 0.5 percent point, to 0.25 percent. The move was predicted by none of the analysts surveyed by Bloomberg.

Source: Bloomberg