Tags: dollar | foreign exchange | jobs | currency

Dollar Rises to 4-Year High as US Adds More Jobs Than Forecast

Friday, 03 October 2014 11:18 AM

The dollar climbed to a four-year high as the U.S. employment rate fell to the lowest since 2008 and the economy added more jobs than forecast, bolstering the case for the Federal Reserve to raise interest rates next year.

The Bloomberg Dollar Spot Index headed for a seventh week of gains, the longest streak since June 2010, after Labor Department figures showed the unemployment rate dropped to 5.9 percent, the lowest since July 2008, and employers added 248,000 workers. The greenback touched a two-year high versus the euro and gained versus most of 31 major peers. The pound dropped below $1.60 for the first time in almost a year. New Zealand’s dollar and the Polish zloty plunged at least 1.4 percent.

“The whole flavor of the report is very positive, frankly I’m surprised dollar hasn’t rallied more,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “The doves will be really clutching at straws to find something they don’t like” in the report.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 1 percent to 1,078.31 at 10:09 a.m. in New York, the biggest increase since June 19, 2013. The gauge touched 1,078.42, the highest closing level since June 2010.

The dollar rose 1.2 percent to 109.72 yen after touching 110.09 on Oct. 1, the strongest level since 2008. It fell 1.1 percent during the past two sessions. The U.S. currency gained 1.2 percent to $1.2522 per euro and reached $1.2513, the strongest since September 2012. The yen traded at 137.31 against the 18-member common currency.

Pound Drops

Sterling dropped 1.1 percent to $1.5968, and touched $1.5965, dipping below $1.60 for the first time since Nov. 14, as the decline in Markit Economics’s Purchasing Managers’ Index of services added to signs that growth in the U.K. is losing momentum.

“The pound is being sold today, suggesting the longer-term dollar bull trend is slowly returning to the foreign-exchange market,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London “Pound-dollar was sold after the U.K. PMI data.”

Asian currencies fell for a fifth week, the longest losing streak in 18 months, as the prospect of higher U.S. interest rates sapped demand for emerging-market assets at a time when China’s economy is sputtering.

The Bloomberg-JPMorgan Asia Dollar Index declined 0.5 percent this week and today sank to its lowest level since March. South Korea’s won led losses in the region with a 1.7 percent slide versus the greenback, while Indonesia’s rupiah dropped 1.1 percent.

Jobs Data

The dollar strengthened today as the unemployment rate, which is derived from a Labor Department survey of households, was projected to hold at 6.1 percent, according to the survey median.

The increase in payrolls followed a 180,000 August gain that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.

The report also showed that average hourly earnings were stagnant in September from a month earlier, while the participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, the lowest since February 1978, from 62.8 percent a month before.

Diverging Policies

The greenback gained 7.6 percent over the past three months against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the biggest winner, as central-bank policies diverged. The euro dropped 1.9 percent and the yen declined 0.4 percent.

The Fed is considering when to raise its benchmark interest-rate target for the first time since 2006 amid signs the U.S. economy is recovering. The target has been maintained in a range of zero to 0.25 percent since 2008 to support the economy.

Officials at the Fed’s meeting last month forecast the target would be 1.375 percent at the end of 2015. Policy makers said at their meeting in July they might increase rates sooner than anticipated if labor-market gains quicken, according to minutes released Aug. 20.

‘Making Progress’

“The Fed has to feel we’re making progress and it’s time for them to consider tightening,” said Richard Schlanger, who helps invest $30 billion in fixed-income securities as vice president at Pioneer Investments in Boston. He said he expects that will happen sometime in late first quarter or early second next year.

The Fed also is on track to end this month a bond-purchase program designed to push down long-term borrowing costs and spur growth. Policy makers meet next on policy Oct. 29.

The European Central Bank and the Bank of Japan are using monetary stimulus to try to stave off deflation as their economies slump.

“Labor is tightening. We’re seeing a significant gap higher in the dollar,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York. “We still like to be long dollar versus euro,” he said, referring to bets the greenback will gain in value versus the shared currency.

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The dollar climbed to a four-year high as the U.S. employment rate fell to the lowest since 2008 and the economy added more jobs than forecast, bolstering the case for the Federal Reserve to raise interest rates next year.
dollar, foreign exchange, jobs, currency
Friday, 03 October 2014 11:18 AM
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