Dollar Rallies to 7-Year High on Economic Outlook
Washington (Nov 5) The dollar rose to its strongest level in seven years against the yen, boosted by signs of strength in the U.S. economy as the Federal Reserve considers when to raised interest rates for the first time since 2006.
Japan’s currency fell versus most of its 31 major peers after Bank of Japan Governor Haruhiko Kuroda said he saw no limit to the steps to defeat deflation. The Bloomberg Dollar Spot Index headed for its highest close since April 2009 as a private report showed employers added more jobs than forecast last month. Sen. Mitch McConnell, in line to become majority leader after Republicans took control in midterm elections, said “gridlock in Washington can be ended.” Russia’s ruble slumped to a record.
“Progress in the labor market has been evident for some months now and it just continues to build,” Richard Franulovich, the chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said by phone. “It reinforces the dollar-positive backdrop.”
The dollar jumped 1 percent to 114.72 yen as of 3:20 p.m. New York time, after rising to 114.84, the strongest level since November 2007. The U.S. currency appreciated 0.5 percent to $1.2478 per euro, while the yen slumped 0.4 percent to 143.13 per euro.
Bloomberg’s dollar index, which tracks the currency against 10 major peers, added 0.5 percent to 1,091.51, extending this year’s advance to 7 percent, the most since 2008.
A JPMorgan Chase & Co. gauge of global currency volatility touched 8.53 percent, the highest since Oct. 16. An index of 20 developing-nation currencies slid to its lowest since March 2009.
Russia’s ruble led losses versus the dollar after the nation’s central bank moved a step closer to allowing the currency to trade freely in an effort to shake out speculators. The currency slid as much as 3.2 percent against the dollar before trading 3.1 percent lower at 44.9400.
The Australian dollar reached the lowest since July 2010 after the price of iron ore, a key export from the nation, declined to its lowest level in more than five years as China ordered some steel mills to cut production. China is the world’s biggest user of ore. The Aussie tumbled 1.8 percent to 85.81 U.S. cents.
The Norwegian krone led gains versus the greenback, rallying from its weakest level since March 2009 as oil rebounded from a four-year low. The currency added 0.4 percent to 6.8325, snapping three days of losses.
West Texas Intermediate crude rose as much as 2.8 percent as a government report showed stockpiles climbed less than forecast last week. Brent oil futures rose 0.5 percent to $83.22 a barrel in London after earlier touching the lowest since October 2010.
The yen reached the weakest in more than three decades versus the Swiss franc. Japan’s currency slipped 0.4 percent to 118.87 per franc, after being at 119.20, the least since January 1983.
At a policy meeting on Oct. 31, the BOJ raised the annual target for enlarging its monetary base to 80 trillion yen ($700 billion) from 60 trillion yen to 70 trillion yen.
“The fact that they took proactive steps to ease policy again last week has obviously reinforced the credibility of the inflation target,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “That’s seen as a negative development for the yen.”
Last week’s easing was “a true display of the central bank’s unwavering commitment,” to defeat deflation, Kuroda said today in a speech in Tokyo. “As for measures for additional easing, I don’t think there is a limit, including on bond purchases.”
The Fed is moving closer to its first interest-rate increase in eight years after finishing its program of asset purchases last month, citing an improving jobs market.
“The Fed is keen to normalize next year and, if data continues to come in strong and good, they’ll have scope to do that,” Brad Bechtel, managing director of Faros Trading LLC in Stamford, Connecticut, said in a phone interview.
The U.S. currency rose as companies hired 230,000 workers in October, the ADP Research Institute in Roseland, New Jersey, said today, exceeding the median forecast of 220,000 predicted by 44 analysts surveyed by Bloomberg.
A government report due this week will show employers added 235,000 jobs in October, according to the median forecast of 90 analysts polled by Bloomberg. Companies hired 248,000 workers in September, more than the 215,000 predicted.
“This data is dollar positive in that it somewhat validates the Fed’s more optimistic statement from its policy meeting last month,” Omer Esiner, chief market analyst at the currency brokerage Commonwealth Foreign Exchange Inc. in Washington, said by phone.
The U.S. currency is also finding support from yesterday’s elections.
“There will be no government shutdowns or default on the national debt,” according to McConnell, a Kentucky Republican who spoke to President Barack Obama today about moving forward on a tax-law revision and trade agreements.