ECM: Dollar Reaches One-Month High Before U.S. Jobs Data
The dollar rose its strongest level in four weeks against the yen as Treasury yields that had reached the highest versus their Group-of-Seven nation peers in almost a month boosted the allure of the U.S. currency.
The dollar rose versus 12 of its 16 major counterparts before reports this week that economists said will show U.S. employers added jobs last month, boosting the case for the Federal Reserve to move closer to ending stimulus measures. The euro approached its weakest level in almost four months on bets the European Central Bank will boost monetary easing tomorrow. Sweden’s krona jumped after industrial production rose and Australia’s dollar strengthened as economic growth quickened.
“A factor moving the dollar-yen higher is the long-awaited rise in U.S. yields,” said Petr Krpata, a foreign-exchange strategist at ING Groep NV in London. “Plenty of easing is now priced in” to the euro, he said. “With the market clearly focusing on tomorrow’s press conference we wouldn’t expect a major break out of the range today.”
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The dollar rose 0.1 percent to 102.65 yen at 6:36 a.m. New York time after advancing to 102.80, the highest level since May 2. The euro slipped 0.1 percent to $1.3614 after falling to $1.3586 on May 29, the lowest level since Feb. 13. The 18-nation shared currency traded at 139.73 yen from 139.69 yesterday.
U.S. companies hired 210,000 workers in May after adding 220,000 the previous month, according to a Bloomberg News survey of economists before ADP Research Institute releases the data today. The Labor Department will say on Friday that payrolls climbed 215,000 last month, a separate survey shows.
Treasury Yields
Treasury 10-year yields climbed to 2.60 percent yesterday, the highest since May 14. The extra yield 10-year notes offer over their G-7 peers expanded to 63 basis points yesterday, the widest since May 12. The spread narrowed two basis points to 61 basis points today.
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The Fed will today release its Beige Book report, which looks at current economic conditions in each of its 12 districts. The survey will give the Federal Open Market Committee information about the economy before it meets on June 17-18 to review monetary policy. The central bank is tapering bond purchases amid signs the economy is improving, having kept its benchmark interest rate close to zero since 2008.
“Dollar-yen has benefited from the bounce in U.S. Treasury yields,” said Callum Henderson, global head of foreign-exchange research at Standard Chartered Plc in Singapore. Further gains in the exchange rate “will depend largely on what happens to the back end of the U.S. Treasury curve,” he said, referring to yields on longer-maturity debt.
Draghi Options
The dollar has appreciated 1.2 percent in the past month, the second-best performer of 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The yen advanced 0.7 percent, while the euro dropped 0.9 percent. The Canadian dollar was the best performer, gaining 1.6 percent.
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The euro traded in a range of less than 0.3 euro cents, the narrowest on a closing-market basis since May 12.
Two euro-area central-bank officials said ECB President Mario Draghi will probably signal any interest-rate cut this week won’t be the last. He may reiterate his commitment to keeping borrowing costs at current or lower levels, they said, asking not to be identified because the talks aren’t public. Policy makers will cut the deposit rate to negative 0.1 percent from zero, according to 32 of 50 economists in a Bloomberg survey. A negative deposit rate would mean banks were charged for parking excess cash with the ECB overnight.
Lower Euro
Gross domestic product in the currency bloc increased 0.2 percent in the first quarter, down from a 0.3 percent gain in the previous three months, the European Union’s statistics office in Luxembourg said today. The first-quarter reading confirmed Eurostat’s initial estimate.
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“It’ll be hard for Draghi to weaken the euro further at Thursday’s meeting,” Yujiro Goto, a currency strategist at Nomura International Plc in London, said yesterday. “A lot of additional easing is already priced in.”
When the ECB last cut interest rates in November, the euro fell more than 1 percent in the hour after the announcement, with only three of 70 economists predicting the change in policy. In the immediate aftermath of the last four meetings the shared currency has appreciated as officials refrained from increasing stimulus further amid slowing inflation.
The euro has weakened 2.7 percent since the intraday high on May 8, the day Draghi said that the Governing Council was “comfortable” acting in June.
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Swedish Production
Sweden’s krona gained against all but one of its 16 major peers after data showed industrial production rose 3 percent in April, after declining a revised 3.6 percent the previous month. Economists in a Bloomberg survey forecast a 2 percent increase.
The krona appreciated 0.3 percent to 9.0784 per euro, the biggest daily advance since May 21. It gained for a second day against the dollar, rising 0.2 percent to 6.6678.
Australia’s dollar rose for a second day versus the yen after the statistics bureau said the economy expanded 1.1 percent in the first quarter, accelerating from a 0.8 percent pace in the previous period.
“The GDP number was much better than expected,” Standard Chartered’s Henderson said. “We should see further upside in the Aussie near term.”
The Aussie gained 0.2 percent to 95.199 yen and added 0.1 percent to 92.75 U.S. cents.
To contact the reporters on this story: Eshe Nelson in London at enelson32@bloomberg.net; Kevin Buckland in Tokyo at kbuckland1@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins
