Tags: jobs | dollar

If Jobs Gains Are a Guide, Look for More Dollar Friendly Reports

Saturday, 06 Jun 2015 06:52 PM

If the stellar jobs report is any guide of economic strength in May, reports next week may provide more impetus for strength in the dollar.

The U.S. currency jumped to a 13-year high against the yen after a report Friday showed payroll employment grew more than forecast in May and wages rose, bringing forward the chance of a Federal Reserve interest-rate increase to September. Retail sales, producer prices and consumer sentiment are forecast to also show increases before Fed policy makers gather in less than two weeks.

“If we’re going see another meaningful rally in the dollar, the main focus is really retail sales,” Paresh Upadhyaya, director of currency strategy at Pioneer Investment Inc. in Boston, said by phone. “Retail sales has been, to say the least, on the soggy side, and May should be a real clean read, we don’t have any type of weather-related issues.”

The dollar advanced 1.2 percent to 125.63 yen this week in New York, and touched 125.86, the highest level since June 2002. The U.S. currency fell 1.2 percent to $1.1114 per euro.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its major peers, added 0.1 percent to 1,192.75.

Dollar Strength

The U.S. currency is up 5.4 percent this year, the second- best performer after the Swiss franc among 10 developed-nation peers, according to Bloomberg Correlation-Weighted Indexes.

Hedge funds and other large speculators added to net futures positions that profit from the dollar strengthening against the yen to the most since Jan. 13, according to data from the Commodity Futures Trading Commission.

Economists in a Bloomberg survey predict retail sales rose 1.2 percent in May, while the producer price index gained the most since 2012. The University of Michigan’s index of sentiment rose in June, based on a separate survey.

A higher appetite to spend and rising wholesale prices provide underlying potential for consumer prices to rise closer to the Fed’s 2 percent target, allowing Fed Chair Janet Yellen and her board to raise borrowing costs sooner.

Fed Watch

“There’s probably a mental high-fiving between Yellen and other Fed members,” Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California, said by phone. “You can see the reaction was almost immediate with the dollar and other Group of 10 counterparts. September rate hike is almost certain at this point.”

Fed fund futures give a 53 percent probability that the central bank will lift rates in September, up from 46 percent before the jobs report, according to data compiled by Bloomberg.

The U.S. central bank has kept its target for overnight loans between banks in a range of zero to 0.25 percent since December 2008 to support the economy.

The Friday payrolls report fueled dollar strength after a week of whipsawing.

The currency tumbled after report of rising inflation in Europe on June 2 and comments by European Central Bank President Mario Draghi that the euro zone is recovering “exactly according to our projections” the day after.

Treasuries tumbled Friday, with 10-year note yields reaching the highest level since October, restoring the appeal of dollar-denominated assets. The U.S. yield is almost one percentage point higher than the average of the Group of Seven nations, according to data compiled by Bloomberg.

“We certainly do expect dollar strength, but we don’t expect it to be a blowout,” said Jennifer Vail, head of fixed- income research in Portland, Oregon, at U.S. Bank Wealth Management, which manages $126 billion.

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2015-52-06
Saturday, 06 Jun 2015 06:52 PM
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