The dollar advanced last week to a 12-year high against the yen on speculation the Federal Reserve is moving closer to raising interest rates in contrast with its global peers.
Bloomberg
New York
The dollar has another hurdle to clear after its two-week rally - this week’s jobs report.
The currency advanced last week to a 12-year high against the yen on speculation the Federal Reserve is moving closer to raising interest rates in contrast with its global peers. Investors are looking to the June 5 employment figures for more evidence that the world’s largest economy is strengthening enough to convince the central bank to increase borrowing costs for the first time since 2006.
“The US dollar uptrend has resumed,” Matt Weller, an analyst at Gain Capital Holdings’Forex.com unit in Grand Rapids, Michigan, said by phone Friday. The strength is backed by “conviction that the Fed, based on their recent comments, is going to raise rates one way or another this year.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major trading partners, rose 1% to 1,191.94 last week in New York, extending the previous week’s 2.6% climb.
The greenback surged 2.2% to ¥124.15 and climbed 0.2% against the euro to $1.0986.
“We’re finally starting to see data that are pointing to a turnaround in US economic performance,” Sireen Harajli, a strategist at Mizuho Bank in New York, said by phone Friday.
“The dollar will continue to gain” because next week’s employment report will probably meet or exceed forecasts, she said.
Payrolls increased by 225,000 in May after gaining by 223,000 in April, according to the median estimate of 61 analysts surveyed by Bloomberg. Average hourly earnings rose 0.2% versus 0.1 in April, a separate survey showed.
“Should the data remain firm, as we expect, there is scope for further US dollar upside,” analysts at Morgan Stanley, including Evan Brown in New York, wrote in a note to clients. “Further solid employment gains are likely to prompt the market to re-price current sanguine expectations for Fed tightening.”Futures show that hedge funds and other speculators are back on board for the dollar rally, after adding to bullish wagers on the US currency for the first time in nine weeks. The difference in the number of bets on a rise in the dollar compared with those on a loss against eight of the greenback’s major peers increased by 48,829 contracts in the week ended May 26, according to Commodity Futures Trading Commission data compiled by Bloomberg.
Dollar bulls were cheered this week by US durable goods orders and consumer confidence data that beat expectations.
First-quarter US gross domestic product shrank at a 0.7% annualised rate, revised from a previously reported 0.2% gain, data showed Friday. The median forecast of 84 economists surveyed by Bloomberg projected GDP would drop at a 0.9% rate.
The dollar has gained 3.1% in the last month, the best performer among 10 developed-nation peers, according to Bloomberg Correlation-Weighted Indexes. The greenback surged to 124.46 yen on May 28, the highest since December 2002.
Net positions that profit from a weaker yen against the dollar increased by the most since March 2012, CFTC data show. Net-short positions totalled 62,224 contracts on May 26, compared with 22,005 contracts the week before.
The strength of the dollar and the US economy have driven the yen’s recent moves, according to Matt Derr, a foreign- exchange strategist at Credit Suisse Group in New York.
“The US leg is what allowed it to get up to 122 and break through,” Derr said May 28. Any move higher is “all going to be dollar and momentum,” he said.
