Dollar Strengthens to 11-Month High Versus Euro on Fed, Ukraine

Frankfurt (Aug 25)  The dollar rose to the highest in 11 months against the euro as Federal Reserve Chair Janet Yellen bolstered speculation policy makers will raise interest rates next year and as geopolitical concerns fueled haven flows.

The U.S. currency climbed to the highest since January versus the yen after Yellen in remarks in Jackson Hole, Wyoming, last week said the U.S. labor market was healing. The euro weakened versus 13 of its 16 major peers before a German report that economists said will show business confidence dropped to a 13-month low. The Australian and New Zealand dollars declined after German Chancellor Angela Merkel reined in expectations the leaders of Russia and Ukraine will agree on peace terms.

“Yellen’s speech being less dovish than expected has allowed the dollar to extend recent gains,” said Imre Speizer, a markets strategist based in Auckland at Westpac Banking Corp. “Geopolitics has been a big factor in enhancing the moves today, as more often than not the dollar benefits from risk aversion.”

The dollar gained 0.3 percent to $1.3205 per euro as of 9:09 a.m. in Tokyo, after completing its sixth-straight weekly rally in the period to Aug. 22, the longest such stretch since January 2012. The greenback reached $1.3184, the strongest level since Sept. 9. The U.S. currency added 0.2 percent to 104.14 yen after advancing to 104.49, the highest since Jan. 23. The euro fell 0.1 percent to 137.52 yen.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 leading global currencies, rose as much as 0.3 percent to 1,031.45, a level not seen since Feb. 3.

Yellen Comments

Yellen’s remarks appeared in line with the message from minutes of the July Federal Open Market Committee meeting, which showed officials growing more aware that labor markets are approaching full employment. She has said the central bank has no “mechanical answer” for when to raise rates, and that before doing so policy makers must be certain the economy is on a solid footing.

Yellen “seemingly endorsed the marginally more hawkish FOMC tone evident in last week’s July minutes,” Ray Attrill, the Sydney-based global co-head of currency strategy at National Australia Bank Ltd., wrote in an e-mailed note to clients today. “This proved to be a green light for a resumption of USD buying.”

U.S. economic data this week may support the case for higher interest rates. The Commerce Department will probably say today new home sales climbed 5.7 percent last month to a 429,000 annualized pace after sliding in June, according to the median estimate of analysts surveyed by Bloomberg News.

Economists predict a separate report tomorrow will show orders for durable goods in July rose at the fastest pace since March 2011.

Confidence Falls

The euro weakened before the Ifo institute publishes data today on its German business climate index, which is based on a survey of 7,000 executives. Analysts surveyed by Bloomberg forecast the gauge fell to 107 in August, which would be the fourth-straight monthly decline and the lowest since July 2013.

Hedge funds and other large speculators turned the most bearish on the euro last week in more than two years, according to data from the Commodity Futures Trading Commission in Washington. The difference in the number of wagers on a decline in Europe’s shared currency versus those on a gain -- known as net shorts -- rose to 138,825 in the week through Aug. 19, the most since July 2012.

European Central Bank President Mario Draghi said on Aug. 22 that investor bets on euro-area inflation have “exhibited significant declines at all horizons” in August, signaling policy makers are ready to add fresh monetary stimulus. Draghi also spoke from Jackson Hole.

Ukraine Tensions

Australia and New Zealand’s currencies fell as investor demand for higher-yielding assets waned amid concern tensions between Russia and Ukraine will persist.

A day after meeting Ukrainian President Petro Poroshenko in Kiev, Merkel went on German television in Berlin to back his peace plan and said time is running out for Europe to solve a parallel dispute over Russian natural-gas transit through Ukraine.

Australia’s dollar weakened 0.2 percent to 93.01 U.S. cents and New Zealand’s currency slid 0.6 percent to 83.61 U.S. cents.

Source: Bloomberg