BLBG: Dollar Rallies to Seven-Week High as U.S. Job Losses Decelerate
By Ye Xie and Oliver Biggadike
Aug. 8 (Bloomberg) -- The dollar advanced to a seven-week high against the yen and gained versus the euro for the first week in almost a month as U.S. employers eliminated fewer jobs last month than economists forecast.
The yen dropped against all of its major counterparts this week and fell to the lowest level against the euro since June as the Labor Department’s payroll report encouraged Japanese investors to buy higher-yielding assets overseas. Treasury 10- year yields posted their biggest weekly increase since 2003, making U.S. assets more attractive to international investors.
“The recovery is setting in relatively quickly,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank AG in Frankfurt. “It’s positive for the dollar in the long term because when the economy recovers it’ll be clear that the U.S. is coming out of the crisis better.”
The dollar climbed 3.1 percent to 97.57 yen, from 94.68 on July 31. It touched 97.79 yesterday, the highest level since June 16. The U.S. currency appreciated 0.5 percent to $1.4183 per euro, the first weekly advance since the five-day period ended July 10. The euro appreciated 2.5 percent to 138.41 yen, from 134.99 a week earlier. It reached 138.72 yesterday, the highest level since June 5.
The gains in the dollar yesterday marked a return to the view that good U.S. economic news should benefit the currency as traders speculated that the Federal Reserve will boost borrowing costs sooner rather than later.
Dollar Index
The Dollar Index, an ICE gauge of the greenback against the currencies of six major trading partners including the euro, yen and pound, increased 0.8 this week to 78.975. It dropped 2.9 percent this year as signs of global economic recovery reduced demand for a haven in the world’s main reserve currency.
“This is monumental,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “This would mark a sea change in how speculators trade economic data and the overall view of the U.S.”
Futures on the Chicago Board of Trade indicated a 64 percent chance that the Fed will increase the target lending rate from its range of zero to 0.25 percent by its January meeting, compared with 52 percent odds a month ago.
Policy makers will probably keep the fed funds target unchanged when they meet on Aug. 12, according to the median forecast of 37 economists surveyed by Bloomberg News.
The pound dropped 0.2 percent to $1.6684 this week as the Bank of England increased its asset-purchase plan by 50 billion pounds ($84 billion) on concern the recession is deeper than previously anticipated. Sterling reached $1.7043 on Aug 5, the highest level since Oct. 21.
Yen Versus Real
The yen declined 5.5 percent this week to 53.52 versus the Brazilian real and weakened 5 percent to 7.54 versus the Mexican peso on speculation investors will buy assets sensitive to global growth. Japan’s 0.1 percent target lending rate compares with 8.75 percent in Brazil and 4.5 percent in Mexico.
“What you’ve started to see is further buying of emerging- market currencies and high-yielding currencies,” said MacNeil Curry, a technical analyst at Barclays Capital in New York. “What they’re buying these currencies against is no longer the dollar. They’re looking for other funding currencies to put this trade on. So you’ve got the yen coming under rather significant pressure.”
U.S. government debt dropped on the employment data. The 10-year yield increased 0.37 percentage point to 3.85 percent on the week, the biggest gain since the five days ended March 21, 2003, when traders speculated the Iraq War’s end was imminent.
Payroll Report
Employers eliminated 247,000 jobs in July after a revised decrease of 443,000 in the previous month, the Labor Department reported yesterday in Washington. The median forecast of 82 economists surveyed by Bloomberg News was for a reduction of 325,000. The unemployment rate decreased to 9.4 percent.
“There’s a sense that the market is now starting to look at fundamentals again,” said Montreal-based Yves Gauthier, a portfolio manager at Fjord Capital Inc., with $800 million under management. “There’s a potential that the market is thinking the Fed will raise rates earlier than initially thought. We think it’s premature.”
The yen tumbled 2 percent versus the dollar yesterday as the yield advantage of 10-year Treasury notes over comparable- maturity Japanese securities increased to 2.42 percentage points, the widest level since Nov. 3.
The dollar may resume its decline as U.S. investors continue to “put money somewhere else in the world” until year-end, said Ronald Plasser, a portfolio manager who oversees 100 million euros ($142 million) at Bankhaus Schelhammer & Schattera AG in Vienna.
“My opinion on euro-dollar is that the first movement is toward $1.50 at the end of the year and later on it should go back, maybe next year to $1.30, because of this good U.S. data and decline of risk aversion,” said Plasser.
To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net
