Dollar Climbs Most in 4 Months Before Fed on Jobs Market

New York (July 27)  A gauge of the dollar advanced the most in four months as reports showed signs of improvement in the U.S. labor market before the Federal Reserve meets debate the pace of interest-rate increases.

The U.S. currency climbed to an eight-month high versus the euro this week as jobless claims tumbled to the lowest in eight years before of nonfarm payrolls data on Aug. 1. New Zealand’s dollar fell the most since January after the central bank said it would pause rate increases. Russia’s ruble gave back gains amid Ukraine turmoil even after the central bank unexpectedly raised borrowing costs yesterday. The Fed meets July 29-30.

“There’s broad dollar strength, but the question is whether the U.S. economy will strengthen sufficiently to put rates up,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “There’s some kind of sea change happening to the euro. It has finally cracked lower.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.5 percent this week in New York, the most since the period ending March 21, and touched 1,014.39, the highest since June 18.

The U.S. currency rose 0.7 percent to $1.3430 per euro, the largest weekly gain since June 13, and touched $1.3422, the strongest since Nov. 21. The greenback climbed for a second week against the yen, advancing 0.5 percent to 101.84. The euro slid 0.2 percent to 136.77 yen.

Kiwi Slumps

The Turkish lira was the biggest gainer of the dollar’s 31 major peers this week, adding 1.4 percent. South Africa’s rand was the second-best performer, rising 1.3 percent, followed by the Columbian peso, which climbed 1 percent.

New Zealand’s kiwi, named for the image of the flightless bird on its NZ$1 coin, lost the most, sliding 1.5 percent and touching a six-week low of 85.39 U.S. cents.

The currency slipped as Reserve Bank of New Zealand Governor Graeme Wheeler said its level is “unjustified and unsustainable.” He indicated they would hold steady after boosting the key interest rate for the fourth time this year to 3.5 percent. That compares with zero to 0.25 percent in the U.S., 0.15 percent in the euro zone and 0.1 percent in Japan.

Russia’s ruble sank for a second day yesterday after its central bank upped the one-week auction rate to 8 percent from 7.5 percent. The move took analysts by surprise with none of the 23 economists surveyed by Bloomberg forecasting an increase.

Capital has flowed out of the country this month after the U.S. and European Union imposed sanctions on Russia for its support of separatists in eastern Ukraine, with the downing of a Malaysian jetliner in the region last week exacerbating tensions. The ruble closed little changed on the week at 35.1435 per dollar.

Euro Slides

The euro fell against all but five of its 31 major counterparts after last week declining through $1.35 for the first time since February.

“European Central Bank policy supports a weaker currency, so therefore I would expect euro will continue this pace of moving lower,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview on July 22. “Toward year-end we should be settling in somewhere around $1.30, and a more aggressive forecast maybe even $1.28.”

Euro-area inflation continues to lag behind policy makers’ target of just under 2 percent, data showed last week.

Futures traders added to bets the euro will fall against the dollar to the highest level in almost two years, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline of the currency compared with those on a rise -- net shorts -- was 88,823 on July 22, the most since November 2012.

Inflation, Jobs

Fed Chair Janet Yellen said earlier this month that borrowing costs may rise sooner than forecast “if the labor market continues to improve more quickly than anticipated.”

The dollar index tumbled 0.4 percent on June 18 after Yellen said the central bank plans to keep its interest-rate target low for a considerable time after it ends bond-buying. The gauge bottomed at an almost two-month low of 1,002.25 on July 1.

It has since wiped out almost all of that loss amid improvements in inflation and the labor market, two indicators that the Fed is monitoring as it decides when to increase interest rates for the first time in eight years.

‘Shifting Expectations’

Consumer prices climbed 2.1 percent in the year through June, official data showed this week. The Fed’s preferred inflation gauge rose 1.8 percent in May from a year earlier, the most since October 2012 and compared with the central bank’s 2 percent target.

Jobless claims fell by 19,000 to 284,000 in the week ended July 19, the fewest since February 2006 and lower than any economist surveyed by Bloomberg forecast, a Labor Department report showed this week. Employers probably added more than 200,000 jobs for a sixth consecutive month in July, according to the median estimate of 35 economists surveyed before nonfarm payrolls data due Aug. 1.

“The payroll number is going to be strong,” said Phyllis Papadavid, a senior global-currency strategist at BNP Paribas SA’s corporate and investment-banking unit in London, on July 23. “That will underpin shifting expectations around the dollar for the second half of the year.”

Source: Bloomberg