Dollar Advances to Highest Since January on U.S. Outlook

A dollar gauge climbed to the strongest level in more than seven months on bets U.S. economic growth will boost chances the Federal Reserve will raise interest rates next year sooner than some traders anticipate.

The yen approached the weakest since 2008 versus the dollar amid speculation Japan’s Prime Minister Shinzo Abe will appoint a policy maker who may shift pension funds toward riskier assets, damping demand for the nation’s currency. U.S. manufacturing expanded in August at the fastest pace in three years as orders grew by the most in a decade, an index showed. Russia stepped up its criticism of the U.S. over Ukraine.

“The U.S. dollar is definitely leading the charge,” said Brad Bechtel, managing director of Faros Trading LLC in Stamford, Connecticut. “You have the geopolitical saga only worsening combined with robust data out of the U.S. So a perfect storm for the USD.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, advanced 0.4 percent to 1,034.20 at 5 p.m. in New York. It reached 1,034.91, the highest since Jan. 23.

The yen dropped 0.7 percent to 105.09 per dollar and touched 105.21, the least since Jan. 10. The currency depreciated to 105.44 on Jan. 2, the weakest since October 2008. It fell 0.7 percent to 138.02 per euro. The dollar was little changed at $1.3133 per euro after touching $1.3110, the strongest since Sept. 6, 2013.

Volatility Rises

JPMorgan Chase & Co.’s Global FX Volatility Index increased to 6.44 percent, the highest level since June 4 and up from an all-time closing low on of 5.29 percent on July 3. The average over the past year is 7.41 percent.

The pound weakened for the first time in five days versus the dollar and euro after a poll by YouGov Plc for the Times and Sun newspapers showed support for Scottish independence increasing before this month’s referendum. Sterling sank 0.8 percent to $1.6470 and touched $1.6468, the lowest since March 24. It depreciated 0.9 percent to 79.74 pence per euro.

Kyodo News reported Abe may name Yasuhisa Shiozaki, deputy policy chief of the Liberal Democratic Party, to head the health ministry, which is in charge of the Government Pension Investment Fund. The 127.3 trillion yen ($1.2 trillion) GPIF is the world’s largest pool of retirement savings. The report fueled “expectations for GPIF reform,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo.

Further Decline

“The widely flagged changes in the GPIF toward more risky assets suggest that the yen continues to decline,” said Gavin Friend, a currency strategist at National Australia Bank Ltd. in London.

The yen has weakened 1.4 percent in the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar has risen 1.3 percent, while the euro has declined 1.1 percent.

The Bloomberg Dollar Spot Index increased for a third day as the Institute for Supply Management’s gauge of U.S. manufacturing unexpectedly rose to 59, the highest level since March 2011, from July’s 57.1, the Tempe, Arizona-based group reported today. Readings greater than 50 indicate growth. The median forecast in a Bloomberg survey of economists was 57.

“The dollar is just slowly, quietly chipping away at every currency,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “This time around, the FX market has said, ‘we are right. All the fundamentals are there for a stronger dollar. We’re going to buy it.’”

A Labor Department report on Sept. 5 will show payrolls rose by more than 200,000 in August for a seventh-straight month, a separate survey showed.

Fed Bets

There’s about a 44 percent chance Fed policy makers will raise the benchmark interest-rate target by June 2015, futures data compiled by Bloomberg showed today. A 36 percent likelihood was seen on Aug. 18.

The Bloomberg Dollar Index may rally further based on technical patterns, according to JPMorgan Chase & Co.

The 50- and 200-day moving averages for the gauge were the closest to converging since they crossed in March. With the 50-day average poised to surpass the 200-day measure, known as the golden cross, the event may be bullish for the dollar, said Niall O’Connor, a technical analyst at JPMorgan in New York.

The Aussie dollar fell after the Reserve Bank of Australia held borrowing costs at record-low 2.5 percent, as predicted by all 31 economists surveyed by Bloomberg, and said an overvalued currency is hampering the economy’s transition away from mining investment. The currency sank 0.6 percent to 92.74 U.S. cents.

ECB Meeting

The euro slid to the lowest in almost a year versus the dollar before the ECB meets on Sept. 4. Policy makers will embark on purchasing bonds under the quantitative-easing stimulus strategy this year or next, according to 44 percent of respondents in a Bloomberg survey last month.

President Barack Obama is heading to eastern Europe to reassure NATO members of their security as tensions with Russia intensify. Russian Foreign Minister Sergei Lavrov said Ukraine’s allies including the U.S. are stoking the nation’s conflict with pro-Russian rebels.

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

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net Greg Storey, Paul Cox

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