Dollar Climbs Ahead of Data on Taper Expectation; Loonie Falls

The dollar rose for a seventh day, its longest rally in eight months, amid speculation reports on jobless claims and housing prices will reconfirm the Federal Reserve’s decision to trim monthly bond purchases.

Canada’s dollar weakened to a more than four-year low versus the greenback after the central bank lowered its inflation forecast. The British pound climbed to its strongest level in a year against the euro after a report showed the U.K. jobless rate dropped to the lowest in almost five years. The Australian dollar jumped the most in a week after a report showed inflation accelerated faster than forecast, boosting bets the central bank will refrain from cutting interest rates.

“Ahead of tomorrow’s weekly jobless claims, it’s not a surprise to see investors squaring up a bit ahead of that data,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “They’re trimming some of their short-dollar positions.” A short position is a bet an asset will decline.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, added 0.1 percent to 1,035.45 at 5 p.m. New York time after rising to 1,037.75 yesterday, the highest since Sept. 6. It last completed a seven-day rally on May 17.

The greenback appreciated 0.1 percent to $1.3547 per euro after earlier falling as much as 0.2 percent. The dollar climbed 0.2 percent to 104.52 yen. The 18-nation shared currency traded at 141.60 yen.

Loonie, Lira

The loonie plunged as Bank of Canada Governor Stephen Poloz said the direction of his next move will depend on the economy’s evolution and that the currency remains strong enough to be a challenge for exports. The benchmark rate on overnight loans between commercial banks was held at 1 percent, where it’s been since September 2010, as expected by all 21 economists in a Bloomberg News survey.

Canada’s dollar depreciated 1.1 percent to C$1.1087 per U.S. dollar and touched C$1.1092, the weakest since September 2009.

Turkey’s lira fell for an eighth day, weakening toward a record low set yesterday, after the country’s central bank said it would wait until next week to raise the cost of funding to lenders. The currency slipped 0.3 percent to 2.2585 per dollar after decreasing as much as 0.7 percent to 2.2678. The lira fell to 2.2691 yesterday.

Peso, Forint

The Mexican peso depreciated versus the greenback amid speculation the U.S. Federal Reserve will continue its current pace of monetary stimulus reductions, lessening the chance investors will seek higher-yielding currency assets. It fell 0.3 percent to 13.3108 per dollar after dropping as much as 0.6 percent.

Hungary’s forint snapped a seven-day slump the euro after after the currency pair’s relative strength index dropped to 31 yesterday, approaching the 30 level that some analysts see as a buy signal. The forint added less than 0.1 percent to 302.57 per euro after rising as much as 0.4 percent to 301.61, the biggest increase since Jan. 10.

Australia’s dollar gained against all but one of 31 main peers as the trimmed mean gauge of core prices rose 2.6 percent in the three months through December from 12 months earlier, the Bureau of Statistics said in Sydney today, compared with the median forecast of 23 economists for a 2.3 percent gain. The consumer price index advanced 2.7 percent, compared with economists’ forecast for a 2.4 percent increase.

There’s a 23 percent chance the Reserve Bank of Australia will reduce its record-low 2.5 percent benchmark rate as of its June meeting, compared to 42 percent odds yesterday, swaps data compiled by Bloomberg show.

‘Big Surprise’

“The inflation report was a very big surprise to the upside,” Dan Dorrow, the head of research at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “It pretty much keeps the RBA on the sidelines for at least another month or two in terms of the interest rate.”

Inflation in the euro area has undershot the ECB’s target of just below 2 percent every month since February last year. ECB President Mario Draghi said this month that there remains the potential for fresh aid if needed and he wants to see sustained confidence before he will “declare victory.”

“The euro is just simply too strong,” said David Bloom, global head of foreign-currency strategy at HSBC Holdings Plc in London. “The disinflationary spiral in Europe seems to us to be intact. It’s ridiculous the euro should trade around $1.35-$1.36. It should be lower.”

The euro will weaken to $1.28 and 140 yen by year-end, according to the median forecasts of analysts surveyed by Bloomberg.

Pound Gains

The pound climbed to the strongest level in a year against the euro as the Office for National Statistics said unemployment fell to 7.1 percent in the three months through November, approaching the 7 percent threshold at which Bank of England officials say they will review borrowing costs. Minutes released today showed policy makers see no need to raise interest rates soon.

Sterling appreciated 0.7 percent to 81.74 pence per euro after advancing to 81.68 pence, the strongest since Jan. 10, 2013. Sterling rose 0.6 percent to $1.6575.

BOJ Governor Haruhiko Kuroda’s board stuck to its pledge to expand the monetary base by an annual 60 trillion yen ($575 billion) to 70 trillion yen today after a two-day meeting in Tokyo, in line with the forecasts of all 36 economists surveyed by Bloomberg News.

Economic ‘Uncertainty’

The central bank maintained its projection that core consumer prices will rise 1.9 percent in the year starting April 2015, excluding the effect of sales-tax increases, and scrapped a reference to the economy facing “uncertainty.”

The dollar gained 3 percent in the past three months, the best performance after the U.K. pound’s 5.9 percent climb, according to Bloomberg Correlation-Weighted Currency Indexes, on speculation the Federal Reserve will continue scaling back stimulus even as data suggested the economic recovery may have cooled. The euro added 1.1 percent and the yen fell 4.8 percent.

The Federal Open Market Committee will reduce asset purchases by $10 billion at each meeting to end the program this year, according to the median forecasts of economists in a Bloomberg survey. It next meets on Jan. 28-29.

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

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

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