Dollar Near Six-Week High Against Euro on Bets Fed Set to Taper

Photographer: Andrew Harrer/Bloomberg

An employee uses a vibrating table to loosen stacks of five dollar notes before they are cut into singles at the Bureau of Engraving and Printing in Washington, D.C. Close

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Photographer: Andrew Harrer/Bloomberg

An employee uses a vibrating table to loosen stacks of five dollar notes before they are cut into singles at the Bureau of Engraving and Printing in Washington, D.C.

The dollar traded near the strongest in more than six weeks against the euro amid bets the Federal Reserve will slow asset purchases on signs the world’s biggest economy is accelerating.

The greenback rose versus all of its 16 most-traded peers last week as U.S. retail sales unexpectedly gained and a consumer-confidence gauge climbed. The euro dropped against the dollar by the most in almost two months as the currency bloc’s economy shrank for a sixth straight quarter. The dollar declined against the yen today, retreating from a more than four-year high. Fed Chairman Ben S. Bernanke testifies to Congress this week on the economic outlook.

“There’s been a lot of excitement about the U.S. economic data,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA in New York, said in a telephone interview May 16. “So far, the interpretation of any tapering has been quite hawkish. The dollar is riding on optimism rather than a significant shift in fundamentals.”

The U.S. currency was at $1.2843 per euro as of 5:30 a.m. in Tokyo, after strengthening 1.2 percent to $1.2839 last week in New York, the biggest advance since the five days ended March 29. It touched $1.2797 on May 17, the strongest since April 4. The dollar slid 0.4 percent to 102.81 yen after reaching 103.31 at the end of last week, the strongest level since October 2008.

The greenback rallied 5.4 percent this year as of May 17, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has advanced 2.3 percent, while the yen fell 13 percent in the largest loss.

The Australian dollar rose 0.3 percent today to 97.60 U.S. cents, after tumbling 2.9 percent last week in the biggest drop among the Group of 10 currencies.

Dollar Longs

Futures traders increased their wagers that the yen and euro will fall against the greenback, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 88,407 on May 14, compared with net shorts of 78,560 a week earlier. Net-short bets that the euro will fall against the dollar rose to 46,921, from 33,533 a week earlier.

Futures traders reversed bets the Australian dollar will gain against its U.S. peer. Net shorts on the Aussie totaled 13,450, the most since June 2012, versus net longs of 6,630 a week earlier.

Fed Tapering

The U.S. dollar extended gains after Fed Bank of San Francisco President John Williams said May 16 that quickening economic growth and gains in the job market may prompt the central bank to begin tapering its bond buying as soon as this summer. Williams was one of the first Fed officials to advocate open-ended bond purchases. Philadelphia Fed Bank President Charles Plosser said a week earlier he’d favor a June reduction.

The Fed is buying $85 billion a month of Treasury and mortgage bonds to push down borrowing costs and spur growth. Bernanke is scheduled to speak to the Joint Economic Committee of Congress on May 22. Minutes of the Fed’s last policy meeting will be released the same day.

U.S. retail sales rose 0.1 percent in April, after a 0.5 percent drop in March, the Commerce Department said May 13. The Conference Board’s index of U.S. leading indicators increased 0.6 percent in April, and the Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment climbed to 83.7 in May, the highest since July 2007, data showed May 17.

ECB, BOJ

“It’s the U.S. economy that’s in the vanguard, and that explains why the dollar continues to advance,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., said in New York. “You also have very much in the forefront that the Federal Reserve might exit its quantitative easing sooner than later, while the Bank of Japan is going to do more QE and the European Central Bank is favored to do more.”

The euro fell for a second week against the greenback as data showed gross domestic product in the 17-nation area shrank 0.2 percent last quarter. ECB President Mario Draghi pledged on May 2 to lower rates again if needed following a cut in the benchmark to 0.5 percent.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net; Rocky Swift at rswift5@bloomberg.net

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