Haruhiko Kuroda and Mario Draghi’s unprecedented easing policies are bearing fruit in the world’s currency market, sending the yen to an almost six-year low and the euro to its longest ever weekly losing streak.
In the U.S., where a report today is forecast by economists to show employers boosted payrolls in August, the strengthening economy is shifting the debate toward the timing of interest-rate increases by the Federal Reserve, a contrast that has pushed a gauge of the dollar to a 14-month high. The European Central Bank yesterday unexpectedly cut its main refinancing rate and signaled purchases of asset-backed securities, while the Bank of Japan maintained record stimulus.
“There are extremes in policy,” said Peter Frank, global head of Group-of-10 and Asia currency strategy at Banco Bilbao Vizcaya Argentaria SA in London. “The market is heading into a new paradigm where the dollar is everyone’s favorite currency because there are so few risks attached to being long dollar. The contrast in the economic outlook and the euro zone is like day and night.”
The yen was little changed at 105.21 per dollar as of 7:04 a.m. in New York after sliding to 105.71, the weakest level since October 2008. The Japanese currency was at 136.27 yen per euro, from 136.26 yesterday.
The euro was also little changed, at $1.2951 after dropping to $1.2920 yesterday, the lowest since July 2013. The currency has tumbled 1.4 percent this week. The euro’s eight-week losing streak is the longest since the currency began trading in 1999.
There is further downside for the euro against the dollar this year, BBVA’s Frank said.
Strength in the greenback also saw the pound, Swiss franc and New Zealand dollar fall to their weakest levels in at least six months. The franc depreciated to 93.36 centimes per dollar, the weakest since September 2013. Sterling dropped to $1.6287 and the kiwi declined to 82.70 U.S. cents, the lowest since February. Turnover in the global foreign-exchange market is about $5.3 trillion a day.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 developed-market peers, was little changed at 1,039.44 after climbing to 1,041.58, the highest level since July 2013.
Economists say a U.S. report today will show employers boosted payrolls by 230,000 in August, the seventh month job creation has been above 200,000, according to a Bloomberg survey.
Fed Governor Jerome Powell said the U.S. labor market has “improved substantially” and that “significant parts” of the Federal Open Market Committee statement need to change.
There’s about a 46 percent chance the Fed will raise its benchmark interest-rate target to at least 0.5 percent by June 2015, according to futures data compiled by Bloomberg. Policy makers have kept the key rate near zero since December 2008. The Fed next meets on Sept. 16-17.
“The market is increasingly positioning for a change in Fed language and that will keep the dollar in the ascendancy,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “The ECB’s move overnight adds to that conviction.”
Draghi yesterday pledged to “significantly steer” the central bank’s balance sheet back toward the 2.7 trillion euros of early 2012 from 2 trillion euros. He also announced a final round of interest-rate cuts and a plan to buy securitized debt and covered bonds. A bond-buying program was also discussed, he said.
Gross domestic product in the euro area stagnated in the second quarter, a report showed today.
A stronger dollar isn’t particularly negative for Japan, BOJ Governor Kuroda said yesterday. Japanese policy makers maintained their pledge to increase the monetary base at an annual pace of 60 trillion yen ($570 billion) to 70 trillion yen.
“The policy divergence between Japan and the U.S.” along with a decline in the euro has helped weaken the yen, said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. “I expect the yen to test 108 by the end of next month as the Fed normalizes policy.”
The dollar has appreciated 1 percent this week, the best performer after the Aussie among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 0.5 percent and the yen weakened 0.2 percent.
New Zealand’s dollar fell for a second day after Finance Minister Bill English said lower dairy prices were a “downside risk” for the economy. The kiwi will probably continue to decline as the outlook for inflation eases pressure on policy makers to raise interest rates, English said today in an interview in Wellington.
New Zealand’s currency dropped 0.1 percent to 82.96 U.S. cents after sliding 0.2 percent yesterday.