By Chris Fournier Dec. 16 (Bloomberg) -- Investors turned bullish on the dollar for the first time since March as the U.S. economy showed evidence of a sustained recovery, a survey of Bloomberg users showed. The world’s primary reserve currency will rise over the next six months, according to respondents in the Bloomberg Professional Global Confidence Index. The 1,934 participants remained optimistic on the outlook for the global economy for a fifth consecutive month. Intercontinental Exchange Inc.’s Dollar Index has risen 3.3 percent since falling to a 15-month low on Nov. 26 as U.S. government reports showed the unemployment rate fell last month and retail sales rose more than forecast. Before the payrolls report on Dec. 4, the index had fallen 17 percent from its peak this year in March as investors bought higher-yielding assets funded with dollars. “There’s been a shift in fundamentals,” said Chris Low, a survey participant in New York who is the chief economist at FTN Financial. “The U.S. economy is starting to show some signs of strength.” Sentiment toward the dollar rose last month to 51.99, from 42.42 in November and 31.23 in October, according to the survey. The reading was last above 50 in March, when it reached 53.41. The measure is a diffusion index, meaning a reading above 50 indicates Bloomberg users expect the dollar to strengthen. ‘Heightened Level’ “It’s the most heightened level of support for the U.S. dollar we’ve seen in some time,” said Sacha Tihanyi, a currency strategist in Toronto at Bank of Nova Scotia, Canada’s third- largest lender. The improving economy is prompting traders to step up bets that the Federal Reserve will raise interest rates by mid-2010. Futures trading in Chicago signaled a 55 percent chance yesterday that policy makers will boost their target rate for overnight loans between banks by at least 0.25 percentage point by June, compared with a 44 percent chance a month ago. “The fact that there’s a reason to tighten, it changes the debate a bit,” said Low, who predicts the central bank won’t boots borrowing costs until September. All 97 economists in a Bloomberg survey forecast the Fed will keep the target rate at a range of zero to 0.25 percent when it finishes a two-day meeting today. Bond Sentiment The prospect for an increase in 10-year Treasury note yields rose to 70.45 in December, from 68.54 a month earlier, the survey showed. That’s below the peak of 73.71 in June. Yields on 10-year notes are 3.56 percent, down from the high this year of 4 percent in June. The Dollar Index, which measures the greenback against the euro, pound, yen, Swiss franc and Swedish krona, rose to 76.96 yesterday. The dollar reached $1.4504 per euro yesterday, its strongest since Oct. 2 and compared with $1.5144 on Nov. 25. It weakened to $1.4582 per euro at 11:15 a.m. in New York. Respondents turned less bullish on the yen, with the survey’s index for the currency falling to 50.6, the lowest level since August, from 53.02 last month and 56.85 in October. The U.S. economy will expand 2.6 percent in 2010, twice as much as Japan, according to the median forecasts in Bloomberg surveys of economists. The yen may replace the dollar as the top funding currency for investments in higher-yielding assets after borrowing from Japan became almost as cheap as U.S. loans for the first time in four months. London interbank offered rates for yen-denominated loans have fallen to within 0.025 percentage point of dollar- based Libor rates, about the narrowest since Aug. 26, data compiled by Bloomberg show. Hedge Fund Positions “The possibility of higher interest rates in the U.S. addresses one of the primary reasons why the U.S. dollar is so weak, which is the carry trade,” Low said. In such a trade, investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. For the first time in seven months traders are betting the euro will fall against the dollar, data from the Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a drop in the euro versus the dollar compared with those on a gain, known as net shorts, was 511 on Dec. 8, compared with net longs of 22,151 a week earlier. That’s the first time since April 28 that short bets outnumbered longs. -- With assistance from Oliver Biggadike in New York and Theresa Barraclough in Tokyo. Editors: Dennis Fitzgerald, Greg Storey To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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