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Dollar Gains Most Since February on Jobs as Yen Falls Below 100

The dollar had its biggest rally since February as signs of labor market strength suggested the Federal Reserve may reduce stimulus sooner than its peers, driving the yen lower than 100 for the first time since 2009.

Japan’s currency touched 101.98 against the dollar yesterday, the weakest since October 2008, after a report said domestic investors boosted overseas bond holdings for the first time since March. The Dollar Index rose 1.2 percent during the week, triggering plunges in oil, gold and Treasuries. The Australian dollar dropped below parity with the buck. The Labor Department may report May 16 that the consumer price index declined 0.3 percent in April, according to a Bloomberg survey.

“As far as the fundamental set-up is concerned, the week has been positive for the dollar,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. (WBC) in New York, said yesterday in a telephone interview. “Eventually higher levels beckon. If we do see a pullback, I expect 100 will be a pretty significant support level. It was a ceiling and now it’s a floor,” he said of the yen versus the dollar.

The yen slumped 2.7 percent for the week versus the dollar to 101.62. Japan’s currency slid 1.7 percent percent to 132 per euro after reaching 132.26, the least since January 2010. The euro dropped 1 percent to $1.2989.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, advanced 1.24 percent last week to 83.097, the highest level since March on a closing basis.

‘Bullish Dollar’

The gauge is forecast to increase 85.7 by the end of the year, according to the median estimate of economists and strategists surveyed by Bloomberg.

U.S. applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008, Labor Department figures showed May 9. The statistics added to data, such as the unemployment rate at the lowest level since December 2008, signaling to some traders that the Fed may reduce easing sooner than policy makers in Europe and Japan.

“The market is reviewing its stance on U.S. macro data,” Neil Jones, head of hedge-fund sales at Mizuho Corporate Bank Ltd. in London, said yesterday in an e-mail. “Numbers from the U.S.A. are surprising to the upside. The market is bullish dollar versus yen.”

The consumer-price index may have fallen 0.3 percent in April after declining 0.2 percent in March, according to the median forecast of 60 economists surveyed by Bloomberg.

Fed Tapering

The Reserve Bank of Australia cut rates to a record 2.75 percent on May 7, while the European Central Bank acted to ease the previous week. Although the Bank of Japan and the U.S. Fed refrained from changing policy at their last meetings, the BOJ doubled its monthly bond purchases in April.

“The week’s surge in the dollar is probably a precursor to people thinking about a Fed exit from its bond buying policy, even though tapering might be quite some way down the road yet,” Andrew Wilkinson, chief economic strategist for Miller Tabak & Co. in New York, said yesterday in a telephone interview. “The opposing force to this is indications from other central banks, like the Australian RBA that does have room to move further and they proved it this week.”

Japanese investors boosted holdings of overseas bonds in each of the previous two weeks, following six weeks of sales, Ministry of Finance data showed yesterday. Investors bought a net 309.9 billion yen ($3.05 billion) of foreign bonds in the five days through May 3, and 204.4 billion yen the previous week.

‘Much Inevitable’

The yen has dropped 5.2 percent against the greenback since April 4 when BOJ Governor Haruhiko Kuroda exceeded economist forecasts by pledging to double monthly bond purchases and buy longer-term debt to reach a 2 percent annual inflation goal. He said it’s natural for a currency to weaken in response to monetary stimulus.

“This thing is probably going to head between 100 and 110,” Wilkinson said. “It will take a little bit longer to do the next 10 yen, but it’s pretty much inevitable.”

The Japanese currency is likely to stay weaker than 100 per dollar, with the 100 level serving as support for the dollar-yen cross, Alan Ruskin, Deutsche Bank AG’s New York-based global head of Group of 10 foreign-exchange strategy, said in a television interview on “Bloomberg Surveillance” with Tom Keene and Sara Eisen. Ruskin sees it reaching 105 in the next two months.

Gold and oil led losses in the 24 commodities tracked by the S&P GSCI Index, sending the gauge down 0.3 percent last week as the stronger dollar caused declines in prices of materials denominated in the U.S. currency. Yields (USGG10YR) on benchmark 10-year Treasury notes climbed to as high as 1.93 percent, the highest since March 26.

The yen has tumbled 23 percent in the past six months, the biggest decline among 10 major currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar gained 1.8 percent and the euro strengthened 4.3 percent.

To contact the reporter on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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