The dollar posted its biggest weekly gain in six as signs of an accelerating U.S. recovery spurred speculation the Federal Reserve will bring forward the timing of interest-rate increases.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, posted a 0.24 percent weekly increase after data showed U.S. nonfarm payrolls rose more than economists estimated and the unemployment rate fell to an almost six-year low. Sweden’s krona touched its lowest in two years after a larger-than-forecast cut to the country’s interest rate. The ringgit climbed to its highest since November on bets Malaysian interest rates will rise. The Australian dollar had its biggest weekly decline since May 23 after its top central banker called it “overvalued.”
“This has been the U.S. dollar’s week overall,” said David Watt, chief economist at the Canadian unit of HSBC Holdings Plc, by phone yesterday from Toronto. “I think we are going to start getting the sense the U.S. dollar is gaining traction and getting back some of the ground it lost earlier this year.”
The Bloomberg Dollar Spot Index’s gain was the biggest in a week since the period ending May 23. The U.S. currency touched 102.27 per yen, the highest since June 18. Expectations for currency swings reached a record low this week.
Foreign-exchange volatility ebbed, with JPMorgan Chase & Co.’s gauge tracking Group of Seven nations dropping 23 basis points, or 0.23 percentage point, to 5.11 percent July 3, the lowest on record on a closing-market basis in data back to 1992.
The dollar posted a weekly advance versus most of its Group of 10 peers. U.S. Labor Department figures showed employers added 288,000 workers in June, more than the 215,000 median forecast of economists surveyed by Bloomberg News. The jobless rate dropped to 6.1 percent from 6.3 percent in May.
“Payrolls is always the figure the market looks to for depth of recovery and that obviously is important to the Fed,” said Neil Mellor, a currency strategist at Bank of New York Mellon in London. “It’s really a question of when the dollar is going to put in a sustained burst higher. The moment hasn’t yet arrived where we’ll see a sustained recovery but it’s one step closer.”
The Fed trimmed monthly bond buying to $35 billion from $85 billion last year, while holding the key interest-rate target in a range of zero to 0.25 percent since 2008 to support the economy.
The dollar has fallen 3.7 percent in the past year, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen has dropped 5.8 percent in the period, the worst performer after the Swedish krona, which plunged 6.4 percent.
The krona touched 6.8760 per dollar July 3, the lowest since July 30, 2012, after the Riksbank unexpectedly cut its benchmark rate by 0.5 percentage point, to 0.25 percent. The move was predicted by none of the analysts surveyed by Bloomberg.
“The krona’s been weakening all year against the euro and it doesn’t come as a surprise that they’ve felt inclined to join currency wars,” Bank of New York Mellon’s Mellor said. “What it’s about is desperately trying to defeat the low inflationary pressure they have.”
The Australian dollar fell 0.7 percent this week to 93.66 U.S. cents, it’s biggest five-day drop since the week of May 23, after touching 95.05 on July 1, the strongest level since Nov. 7.
Investors are underestimating the probability of a “significant fall” in the Aussie at some point, Reserve Bank of Australia Governor Glenn Stevens said July 3. “Most measurements would say it is overvalued, and not just by a few cents,” he said in a speech. Policy makers on July 1 held the interest rate unchanged at a record-low 2.5 percent, where it’s been since August.
The euro fell 0.4 percent this week to C$1.3593 per U.S. dollar this week after the European Central Bank kept the main refinancing rate at 0.15 percent July 3 after a cut last month, as predicted by all 54 analysts in a Bloomberg survey.
“It’s pretty certain that the ECB will leave rates low for at least a couple of years,” Lennon Sweeting, a San Francisco-based dealer at the broker and payment provider USForex Inc., said in a phone interview. “Interest rates in Europe will lag rate hikes at the Fed or Bank of England, and with that said, euro-U.S. and euro-sterling should go lower.”
The possibility of an interest-rate increase will be actively discussed at the Malaysian central bank meeting next week, and this will help the currency outperform emerging-market peers, Goldman Sachs Group Inc. said in a report.
Malaysia’s ringgit rose as high as 3.1805 per U.S. dollar yesterday, the strongest since Nov. 20.
“The NFP, ECB meeting and Riksbank -- all of that lends to the same strong-dollar story,” Fabian Eliasson in foreign-exchange sales at Mizuho Financial Group Inc. in New York said in a telephone interview July 3. “You still need to see more consistent data points to support a stronger dollar in the long run.”