The dollar had the longest rally since teenagers bought Beatles albums and Lyndon Johnson was president as the Federal Reserve signaled interest rates will rise next year while other central banks pushed stimulus plans.
The U.S. Dollar Index rose for a 10th consecutive week, the longest since at least March 1967. Sterling rose after Scotland rejected independence, reviving bets the Bank of England will join the Fed in raising rates. The yen fell versus all of its 16 major peers as the Bank of Japan pledged to maintain stimulus to fight deflation, while the European Central Bank debuted a loan program. A report next week may revise second-quarter U.S. economic growth higher.
“The Fed and the BOE are the two central banks that’ll start hiking rates next year, and we like being long dollar and sterling,” said Athanasios Vamvakidis, head of Group of 10 foreign-exchange strategy at Bank of America Merrill Lynch in London. “There’s more room for investors to accumulate long positions on the dollar.” Long positions are bets a currency will gain.
The U.S. Dollar Index, which Intercontinental Exchange Inc. uses the gauge to track the greenback against the currencies of six trade partners, increased 0.6 percent this week in New York to 84.735. It was the highest closing level since June 30, 2010.
The yen dropped against the dollar for a sixth week, the longest losing streak this year, depreciating 1.6 percent to 109.04 per greenback. It touched 109.46, the weakest level since Aug. 29, 2008. The U.S. currency gained 1 percent to $1.2829 per euro, the strongest since July 10, 2013. The euro rose 0.5 percent to 139.89 yen in a second weekly advance.
A gauge of foreign-exchange market price swings fell for the first week in a month. The JPMorgan Chase & Co. Global FX Volatility Index reached 7.29 percent, from a five-month high of 7.65 percent on Sept. 15. The average over the past year is 7.29 percent.
Brazil’s real was the biggest loser among the greenback’s 16 major counterparts after the yen and the Australian currency, weakening 1.2 percent to 2.3682 per dollar, as President Dilma Rousseff defended her performance amid a recession and inflation. A poll showed voter support slipping for her election opponent, Marina Silva.
“Markets are not pleased with Rousseff gaining support,” Joao Paulo de Gracia Correa, a trader at Correparti Corretora de Cambio in Curitiba, Brazil, said in a telephone interview.
Australia’s dollar lost 1.3 percent to 89.25 U.S. cents.
The Canadian dollar was the biggest winner as inflation in the country rose more than forecast.
The loonie, as the currency is nicknamed for the image of the aquatic bird on the C$1 coin, climbed 1.2 percent to C$1.0963 per U.S. dollar after Canada’s core inflation rate, which excludes eight volatile items, rose 2.1 percent in August, the fastest pace in more than two years. The broader consumer price index increased 2.1 percent for a second month.
Fed policy makers, who met Sept. 16-17, increased their median estimate for the federal funds rate to 1.375 percent at the end of next year, versus June’s forecast for 1.125 percent. The benchmark target rate has been in a range of zero to 0.25 percent since 2008 to support the economy.
“This hawkish twist to the Fed is pushing the greenback higher, and at the same time all its major peers are looking structurally weak,” Stan Shamu, a markets strategist in Melbourne at IG Australia, a unit of IG Group Holdings Plc, said Sept. 18. “The U.S. dollar is probably going to continue in very good form.”
There’s a 60 percent chance the U.S. central bank will raise the target rate to at least 0.5 percent by July 2015, futures data compiled by Bloomberg showed yesterday. That was up from a 49 percent likelihood a month earlier.
The U.S. Dollar Index has rallied 5.9 percent this year, headed for the biggest annual gain since 2008, when the Fed began the first of three rounds of bond purchases under the quantitative-easing stimulus strategy. The gauge lost 4.2 percent in 2009.
The 10-week winning stretch was the longest in Dollar Index data going back to March 1967, when Johnson was in the fourth year of his presidency and the Beatles were preparing to release their “Sgt. Pepper’s Lonely Hearts Club Band” record album.
“It tells you the dollar has been so depressed over the last few years and now that depression is unwinding, like a coiled spring,” Douglas Borthwick, head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. “The Dollar Index will continue to stay bid as long as the Japanese continue to make motions of quantitative easing, while Europe makes more noise about expanding their balance sheets.”
U.S. gross domestic product rose an annualized 4.6 percent in the second quarter, the most since fourth-quarter 2011, economists surveyed by Bloomberg forecast before the Commerce Department reports the latest revision of the data on Sept. 26. The first estimate, issued in July, was 4 percent. The economy shrank 2.1 percent from January through March.
The yen dropped this week after Bank of Japan Governor Haruhiko Kuroda said in Tokyo he won’t hesitate to adjust monetary policy if needed to spur inflation. The central bank retained a pledge at a meeting this month to increase the monetary base at an annual pace of 60 trillion yen ($550 billion) to 70 trillion yen.
The dollar gained 3.2 percent in the past month in a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the best performance. The yen lost 3.3 percent, the biggest decline, and the euro fell 1.1 percent. Sterling gained 0.9 percent.
The pound rose for the first week in three versus the euro and dollar after the results of Scotland’s vote were announced and opponents of independence won, 55 percent to 45 percent.
The U.K. currency advanced 1.2 percent, the most since June, to 78.76 pence per euro and reached 78.10 pence, the strongest since July 2012. Sterling rose 0.1 percent to $1.6288 and touched $1.6525, the highest since Sept. 2.
The Bank of England is considering when to raise interest rates as the nation’s economy recovers.
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