Dollar Strengthens to Nine-Month High Against Euro; Yen Climbs

Washington (Aug 6)  The dollar rose to the strongest level in almost nine months versus the euro as signs the U.S. economy is strengthening and tensions over Ukraine are increasing boosted the appeal of American assets.

The U.S. currency appreciated against 15 of its 16 major peers after Federal Reserve Bank of Dallas President Richard Fisher said yesterday policy makers were becoming more “hawkish.” The euro fell as data showed German factory orders fell and Italy returned to recession. New Zealand’s dollar slid to a two-month low after job growth slowed. The yen advanced as investors sought a haven after Russian President Vladimir Putin ordered a response to sanctions.

“You’ve got to stick with the dollar,” said Derek Halpenny, the head of global-markets research at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. Ukraine “is back in focus as something that could have a fairly negative impact on growth. The U.S. is in a far better shape and the dollar’s historic link with periods of uncertainty and risk is second to none, so that’s where investors would go.”

The dollar advanced 0.3 percent to $1.3343 per euro as of 7:02 a.m. New York time after appreciating to $1.3333, the strongest level since Nov. 8. The U.S. currency declined 0.2 percent to 102.36 yen. The euro depreciated 0.5 percent to 136.57 yen.

‘My Direction’

The Federal Open Market Committee “is coming in my direction,” Fisher said in an interview with Fox Business Network yesterday. The Dallas Fed president said he has a “hawkish slant,” meaning he sees a more pressing need to move away from accommodative monetary policy that weakens the currency.

Fisher is trying to help out the dollar “with his usual hawkish comments,” Emma Lawson, a senior currency strategist at National Australia Bank Ltd. in Sydney, wrote today in a client note. “It seems the market may just be swinging around to believe him.”

Traders are willing to pay a premium for one-month options to buy the dollar against all of its 16 major counterparts, 25-delta risk reversals show.

The dollar was also supported as Putin ordered his government to prepare a response to U.S. and European sanctions. He has shown no sign of backing down over Ukraine, with Russia massing forces on its neighbor’s border in the biggest military buildup since troops were withdrawn from the area in May.

Dollar Gains

The greenback strengthened 1.9 percent in the past month, according to Bloomberg Correlation-Weighted Indexes, boosted by investor seeking a haven amid concern the political tension and sanctions will hamper growth in Europe. It was the best performer of the 10 developed-nation currencies tracked by the indexes, with the yen gaining 1.5 percent while the euro fell 0.2 percent.

The 18-member common currency held a two-day decline against the dollar as the German Economy Ministry said factory orders slid 3.2 percent in June from May, when they fell a revised 1.6 percent. The median forecast in a Bloomberg survey of economists was for an increase of 0.9 percent.

Italy’s economy shrank 0.2 percent in the second quarter after contracting 0.1 percent in the previous three months, the national statistics institute Istat separately said today.

‘Trend Decline’

“Data surprises have been on trend decline in the euro zone for a long, long time now,” Geoffrey Yu, a senior currency strategist at UBS AG in London, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro. “On a relative basis we might start to see data pick back up again, relative to expectations, so we really need to be cautious about slamming the euro aggressively at these levels.”

The kiwi declined for a second day after Statistics New Zealand said employment increased 0.4 percent in the second quarter, less than the 0.7 percent median estimate of economists surveyed by Bloomberg.

“Before this report, there was a bias to sell the kiwi dollar,” said Imre Speizer, a markets strategist based in Auckland at Westpac Banking Corp. “This gives the market an excuse to go and do some more.”

The New Zealand dollar declined 0.3 percent to 84.44 U.S. cents after sliding to 84.24 cents, the weakest since June 5.

China’s yuan rose beyond the central bank’s fixing for the first time since the currency’s trading range was doubled, amid optimism a recovery in the world’s second-largest economy is gathering pace.

The yuan advanced 0.12 percent to close at a five-month high of 6.1633 per dollar in Shanghai, China Foreign Exchange Trade System prices show. That’s 0.02 percent stronger than today’s reference rate of 6.1681, the first premium since the trading band was increased to 2 percent on March 17.

The currencies of South Korea, Indonesia and Malaysia all fell versus the dollar for the first time in three days as investors preferred U.S. assets. The won slid 0.5 percent to close at 1,033.70 per dollar in Seoul. Indonesia’s rupiah weakened 0.5 percent to 11,751, and the ringgit depreciated 0.4 percent to 3.1875 against the greenback.

Source: Bloomberg