BLBG:Dollar Approaches Six-Week High on Fed Outlook; Rupee Advances
The dollar approached a six-week high against the euro amid speculation signs of improvement in the U.S. economy will compel the Federal Reserve to taper its quantitative-easing program as early as this month.
The U.S. currency strengthened through 100 yen for the first time since July 25. It gained versus 14 of its 16 major peers before industry reports economists said will show employment increased and the service industry expanded. The pound rose for a seventh day against the euro before the Bank of England and European Central Bank set monetary policies today. India’s rupee strengthened after the new central-bank governor took steps to boost dollar supply.
“It’s very difficult to say anything negative about U.S. data right now,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen. “We expect even more dollar strength going in 2014. We don’t think there will be any changes from the ECB today.”
The dollar appreciated 0.2 percent to $1.3176 per euro as of 9:17 a.m. London time after reaching $1.3139 on Sept. 3, the strongest since July 22. The U.S. currency gained 0.3 percent to 100.03 yen after climbing to 100.12, the most since July 25. The euro was little changed at 131.80 yen.
The ADP Research Institute will say U.S. companies added 182,000 jobs last month, according to the median estimate in a Bloomberg News survey of economists before the report is released today. That would follow a 200,000 increase in July, the most since December.
Payrolls Report
U.S. nonfarm payrolls rose by 180,000 in August while the jobless rate held at 7.4 percent, the lowest since December 2008, Labor Department data will show tomorrow, according to a separate Bloomberg survey.
The Institute for Supply Management’s gauge of non-manufacturing industries was 55 in August from 56 the previous month, another survey showed before the figures today. Readings above 50 signify expansion.
Fed policy makers are debating whether the economy is strong enough to allow them to pare monthly purchases of $85 billion in Treasuries and mortgage debt, which tend to debase the dollar. A Bloomberg News survey of economists taken Aug. 9-13 showed that 65 percent of them expected a reduction at the Fed’s meeting on Sept. 17-18.
Pimco’s View
Any cut in bond buying will be announced alongside caveats in the Fed’s language that will allow policy makers to resume purchases if needed, Pacific Investment Management Co.’s Mohamed El-Erian said yesterday in a radio interview on “Bloomberg Surveillance” with Tom Keene.
The dollar has strengthened 5.6 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 9.9 percent and the euro has risen 5.5 percent.
The yield on Treasury five-year notes climbed as much as six basis points, or 0.06 percentage point, to 1.80 percent, the highest since July 1, 2011.
“The outlook for the U.S. economy and monetary policy will have a big impact over the dollar in the medium to long term,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “Our view remains that the Fed will decide to taper easing in two weeks.”
The Bank of Japan, which buys more than 7 trillion yen of Japanese government bonds every month in its bid to stoke inflation to 2 percent, kept its policy on hold today. The BOJ said a moderate recovery is under way. BOJ Governor Haruhiko Kuroda said economic growth will exceed potential even with a planned increase in sales tax.
Policy Decisions
ECB policy makers will keep the main refinancing rate at 0.5 percent following a meeting today, according to all 56 economists in a Bloomberg survey. The Bank of England will maintain its bond-purchase target at 375 billion pounds ($585 billion) and keep its benchmark interest rate at a record-low 0.5 percent, according to separate surveys.
The pound approached a more than three-month high against the euro after a report yesterday showed U.K. services expanded at the fastest pace since 2006. Bank of England Governor Mark Carney introduced forward guidance on the path of interest rates last month, saying the Monetary Policy Committee won’t consider raising its key rate until unemployment falls to 7 percent.
The pound appreciated 0.1 percent to 84.46 pence per euro. It reached 84.27 yesterday, the strongest level since May 16.
The rupee advanced for a second day versus the dollar. In his first briefing after taking office, Reserve Bank of India Governor Raghuram Rajan announced a plan yesterday to provide concessional swaps for banks’ foreign-currency deposits, a move that will boost the authority’s reserves by $10 billion, according to Bank of America Merrill Lynch.
The rupee traded 1.6 percent stronger at 66.02 per dollar after climbing as much as 2.3 percent to 65.53, prices from local banks compiled by Bloomberg show.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; David Goodman in London at dgoodman28@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
