The dollar strengthened to an 11-month high versus the euro before the Federal Reserve releases the minutes of its July meeting amid speculation policy makers are moving toward raising borrowing costs.
A gauge of the U.S. currency reached a six-month high before Fed Chair Janet Yellen speaks at Jackson Hole, Wyoming on Aug. 22. Goldman Sachs Group Inc. said it expects further gains in the dollar as money flows out of Europe. The pound strengthened against all of its 31 major peers after the Bank of England said two officials voted for an increase in interest rates at the Aug. 6-7 policy meeting. New Zealand’s dollar declined on speculation economic growth is waning.
“I don’t think the minutes will send any new policy signals, but the topic of discussion will be focused on the technicalities of the exit strategies, it’ll add some hawkish flavors to the minutes,” said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. “The minutes shouldn’t stand in the way of dollar strength.”
The U.S. currency gained 0.3 percent to $1.3282 per euro as of 12:09 p.m. in New York, after appreciating to $1.3275, the strongest level since Sept. 13. The greenback climbed 0.4 percent to 103.36 yen after reaching 103.41, the most since April 7. The euro rose 0.1 percent to 137.28 yen.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, advanced 0.2 percent to 1,025.65. The gauge earlier rose to 1,026.13, the highest since Feb. 7.
South Korea’s won led losses among the 16 major currencies as official data showed the nation’s short-term external debt rose to $131.8 billion by the end of June, the highest since the third quarter of 2012. The won fell 0.4 percent to 1,022.69 per dollar.
The pound climbed from a four-month low against the dollar after the Bank of England said Martin Weale and Ian McCafferty voted to increase the benchmark rate by 25 basis points from a record-low 0.5 percent, according to the minutes of the Monetary Policy Committee’s most recent meeting. It marks the first split on borrowing costs in more than three years.
Sterling rose 0.1 percent to $1.6632. It traded at $1.6602 before the minutes were published, the lowest since April 7. The U.K. currency appreciated 0.5 percent to 79.79 pence per euro.
The kiwi dropped for a fourth day against the dollar and declined below 84 U.S. cents for the first time since March.
“The New Zealand economy has stopped providing upside pushes to the New Zealand dollar, while better U.S. data has provided a dollar bid,” said Sam Tuck, a senior currency strategist at ANZ Bank New Zealand Ltd. in Auckland. “A support level for kiwi has been taken out at 84 U.S. cents,” triggering stop-loss orders, he said. Support refers to an area on a chart where analysts anticipate orders to buy are clustered.
New Zealand’s currency fell 0.1 percent to 84.08 U.S. cents after dropping to 83.73 cents, the lowest since March 4. Monetary easing by the European Central Bank “is driving more euro zone residents to search for yield abroad,” Goldman Sachs analysts including New York-based chief currency strategist Robin Brooks wrote in a research note dated yesterday. The picture is supportive of further “downside” for the euro against the dollar, according to the analysts.
ECB President Mario Draghi said at the central bank’s Aug. 7 meeting that risks to the region’s recovery were increasing and the “fundamentals” for a weaker euro were now much better after a barrage of stimulus measures announced in June.
U.S. reports this month have shown employers added more than 200,000 workers for a sixth month in July, while a gauge of manufacturing increased and housing starts quickened.
The dollar has gained 1.6 percent in the past month, the second-best performer after Norway’s krone of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has fallen 0.4 percent and the yen has declined 0.6 percent.
“Investors have no other choice but to buy the dollar after the good housing data pushed stocks and yields higher,” said Junichi Ishikawa, an analyst at IG Markets in Tokyo. “If the minutes today signal the Fed is confident that the economy is steadily recovering and policy makers are discussing the specifics about future policy, that would be taken as hawkish and would support the dollar across the board.”
The Fed cut monthly bond purchases by $10 billion for a sixth consecutive meeting last month to $25 billion.
“The dollar was appreciating of late based on rising expectations of the Fed turning a little less dovish,” said Manuel Oliveri, a foreign-exchange strategist at Credit Agricole SA’s corporate and investment banking unit in London. “The focus is shifting to Friday’s speech by Yellen and Jackson Hole. There is the notion in the market that she may turn less dovish. That’s one of the reasons why the dollar is in demand.”
The euro may weaken below $1.30 by year-end, Oliveri said.