Dollar Heads for Best Month in More Than a Year
New York (Ju;ly 31) The dollar headed for its biggest monthly gain versus the euro since February last year as signs of a strengthening U.S. economy spurred traders to boost predictions for higher Federal Reserve interest rates.
The U.S. currency has risen versus all of its 16 major counterparts in July as reports showed gross domestic product rebounded and durable goods orders increased. Economists predict data tomorrow will show U.S. employers added more than 200,000 jobs for a sixth month. Australia’s dollar fell to an eight-week low after building approvals unexpectedly declined. India’s rupee weakened on concern capital inflows to emerging markets will slow as the Fed cuts bond purchases.
“The dollar is at the beginning of an uptrend versus the euro and the yen,” said Alvin Tan, a foreign-exchange strategist at Societe Generale SA in London. “The market is getting increasingly hawkish about U.S. rates. Short-term forward expectations of Fed policy have been moving forward quite steadily.”
The dollar was little changed at $1.3382 per euro at 7:03 a.m. New York time, having advanced 2.3 percent this month. It appreciated to $1.3367 yesterday, the strongest since Nov. 12. The U.S. currency was at 102.86 yen from 102.79 yesterday after gaining for the previous nine trading days. The euro was little changed at 137.65 yen.
Job Growth
Societe Generale today recommended buying the dollar versus the yen at a spot rate of 102.60, with a target of 105.00. The bank would be forced to exit the recommendation on a daily close below 101.70.
U.S. employers added 231,000 workers in July and the jobless rate stayed at an almost six-year low of 6.1 percent, according to Bloomberg News surveys before tomorrow’s Labor Department data. The world’s biggest economy expanded at a 4 percent annualized pace last quarter, after shrinking 2.1 percent in the previous three months, the Commerce Department said yesterday.
A report today showed the euro-area inflation rate unexpectedly slowed to 0.4 percent in July compared with 0.5 percent in June. That’s the lowest reading since 2009. The median estimate in a survey of economists by Bloomberg News was for the rate to hold at 0.5 percent this month.
A separate report showed the euro-area unemployment rate unexpectedly dropped to 11.5 percent in June from 11.6 percent in May.
Inflation Falling
The European Central Bank is trying to stop inflation falling too low in an economy struggling to recover from a debt crisis that threatened to fragment the euro bloc. Inflation has been below 1 percent every month since October.
The dollar will strengthen 2.2 percent to 105 yen by year-end, according to the median forecast of more than 60 analysts surveyed by Bloomberg.
“Our view is range-bound to dollar-yen near term but ending the year strong at around 106, 107,” Callum Henderson, global head of foreign-exchange research at Standard Chartered Plc in Singapore, said today in a Bloomberg Television interview. “Dollar-yen is more of a function of U.S. data right now than Japanese data.”
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, was little changed today at 1,021.69, having climbed 1.8 percent in July, set for the biggest monthly gain since May 2013.
Bond Buying
Fed officials cut monthly bond buying to $25 billion at a two-day meeting that finished yesterday, staying on pace to end the program in October. Traders see 87 percent odds the central bank will raise the target for its benchmark rate to at least 0.5 percent by September 2015, based on futures contracts. The figure was 78 percent at the start of July.
Australia’s dollar weakened versus all 16 major peers after the Bureau of Statistics said building approvals fell 5 percent in June. Economists surveyed by Bloomberg estimated they would be unchanged.
The Aussie dropped 0.4 percent to 92.96 U.S. cents and slid as low as 92.88 cents, the weakest level since June 5. The currency has declined 1.5 percent versus the greenback in July, set for the first monthly loss since January.
The rupee fell the most in seven weeks on speculation the conclusion of the Fed’s bond purchases will curtail demand for emerging-market assets.
“The markets are a little jittery on concerns inflows will get impacted as the Fed’s bond purchases end later this year,” said Anindya Banerjee, a currency analyst at Kotak Securities Ltd. in Mumbai. “The rupee’s weakness is mainly driven by U.S. economic data last night and the Fed’s decision to further cut bond purchases.”
The rupee fell 0.8 percent to 60.54 per dollar, the biggest one-day decline since June 13.
Source: Bloomberg
