Dollar Rallies as Growth Bolsters Interest-Rate Bets

The dollar rose for a sixth day as a report showed U.S. economic growth accelerated faster than previously estimated, bolstering the case for the Federal Reserve to increase interest rates.

The yen dropped, approaching the weakest level in six years versus the U.S. currency, on speculation Japan’s government will push ahead with changes to allow the nation’s $1.2 trillion pension fund to buy more overseas assets. The euro slumped to a 22-month low, while Russia’s ruble led emerging-market currencies lower. Treasury yields increased, burnishing the attraction of dollar-denominated assets.

“The dollar is a ball of momentum at this point,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut. “The Fed is going to be the story of next year if it already isn’t. That’s really the catalyst behind the dollar’s behavior at the moment, and everything else is suffering at its hands.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, jumped 0.4 percent to 1,067.29 at 5 p.m. New York time, its highest close in four years. It gained for a sixth-straight week, the longest stretch since November 2012. It has climbed 3.7 percent in September and 6.4 percent this quarter.

Japan’s currency depreciated 0.5 percent to 109.29 per dollar after touching 109.46 on Sept. 19, the weakest level since August 2008. The dollar gained 0.5 percent to $1.2684 per euro and reached $1.2677, the strongest level since November 2012. The yen was little changed at 138.63 per euro.

Dollar Bets

Hedge funds and other large speculators raised net bullish futures bets on the dollar versus eight major peers to 238,056 contracts, the most in eight months, from 185,458 a week ago, data from the Commodity Futures Trading Commission in Washington showed.

Emerging-market currencies dropped, with the Mexican peso losing 0.5 percent and Hungarian forint declining 0.7 percent.

The greenback rose as Treasuries fell, pushing up yields, amid bets Bill Gross’s exit from Pacific Investment Management Co. may prompt the world’s biggest manager of bond funds to shift away from U.S. government debt. Benchmark 10-year note yields rose as much as five basis points, or 0.05 percentage point, to 2.55 percent.

Gross, 70, who co-founded Pimco in 1971, will join Janus Capital Group Inc., Janus said.

‘Important Driver’

“After the news on Bill Gross changing jobs, the fact that the back end of the curve was starting to trade off was starting to hurt risky currencies,” said Alan Ruskin, global head of Deutsche Bank AG’s Group of 10 foreign exchange in New York, referring to a chart of Treasury yields. “That’s really been probably the most important driver out there, and the dollar’s looked good against pretty much everything.”

The ruble weakened to a record against the dollar as Russian prosecutors filed a suit to regain state ownership of OAO Bashneft, the oil producer controlled by Vladimir Evtushenkov’s AFK Sistema. Sistema’s owner was put under house arrest last week on charges of money laundering. The currency slid versus all 31 major peers, falling 1.8 percent to 39.1920 per dollar.

The yen has lost 4.8 percent versus the dollar in September, set for the worst month since January 2013.

Japan’s currency sank as Health Minister Yasuhisa Shiozaki, whose ministry oversees the Government Pension Investment Fund, said at a briefing in Tokyo there’s no intention to postpone a law change that would improve the fund’s governance. Shiozaki cast doubt on the timing of the bill when he spoke on a television program earlier this week, Yomiuri newspaper reported yesterday.

Riskier Investments

The legislation is part of the government’s reform agenda for the world’s largest pension fund, which includes an asset allocation review that may see it buy more riskier investments, including foreign stocks and bonds.

“That clearly would have an impact, certainly on the yen,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London.

The Bank of Japan has pledged to maintain unprecedented stimulus to fuel economic growth. It’s buying 60 trillion yen ($553 billion) to 70 trillion yen of assets a year to try to spur inflation to an annual 2 percent rate.

U.S. Economy

U.S. gross domestic product grew at a revised 4.6 percent annualized rate in the second quarter, the fastest since the last three months of 2011, up from a previous estimate of 4.2 percent, Commerce Department data showed today.

The dollar gained 3.9 percent during the past month versus nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the best performer. The euro lost 0.3 percent, and the yen tumbled 1.6 percent.

The Fed is considering when to raise interest rates for the first time since 2006 while central banks in Japan and the euro region use monetary stimulus to spur slumping economies.

“The strong-dollar trend across the board is continuing,” said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. “The Fed is on track to end QE in October and is likely to raise rates by the middle of next year as planned, while we haven’t seen much improvement in other nations,” Shirai said, referring to the central bank’s program of purchasing government bonds known as quantitative easing.

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