The dollar climbed to its strongest in more than a year versus the pound after U.K. policy makers cut growth forecasts while the U.S. Federal Reserve prepares to raise interest rates.
The greenback rose against the euro as European Central Bank Governing Council member Jens Weidmann said inflation would stay low for an extended period of time. The yen advanced from its weakest level in seven years versus the dollar as Japanese officials downplayed speculation of an early election that may boost Prime Minister Shinzo Abe’s mandate for unprecedented stimulus. New Zealand’s dollar rallied.
“Now that expectations have been pushed back further for a U.K. rate increase, this seemingly puts the Fed at the front of the line,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “The recovering U.S. economy will keep the Fed toward the head of the line in raising rates.”
The U.S. currency added 0.9 percent to $1.5779 per pound as of 5 p.m. in New York after touching $1.5776, the strongest since September 2013. The dollar rose 0.3 percent to $1.2438 per euro.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, gained 0.2 percent to 1,094.19. The yen strengthened 0.3 percent to 115.49 per dollar. The yen appreciated 0.6 percent to 143.64 per euro.
The dollar is up 1.9 percent over the past month among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The pound has lost 0.2 percent while the euro has added 0.2 percent.
Russia’s ruble rallied today, gaining 0.8 percent versus the dollar, the most of 24 emerging-market currencies tracked by Bloomberg.
The kiwi, named for an image of the flightless bird on its NZ$1 coin, gained the most of the dollar’s 16 major peers after Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, reiterated forecasts for milk payments and dividends for next year.
New Zealand’s dollar rose 0.9 percent to 78.79 U.S. cents, even as Reserve Bank of New Zealand Governor Graeme Wheeler said the currency remains overvalued at an unsustainable and unjustified level.
The yen strengthened against most of its 16 major peers after touching 116.10 versus the U.S. currency yesterday, the weakest level since October 2007. The median forecast of more than 50 analysts surveyed by Bloomberg News sees the yen at 112 by year end, from 109 estimated a month ago.
Japan’s currency rallied after Chief Cabinet Secretary Yoshihide Suga told reporters in Tokyo he isn’t preparing for an early election, and there was no change to the government’s stance to make a decision by the end of this year on raising the country’s sales tax.
Finance Minister Taro Aso said later that no decisions had been made on postponing an increase in the levy. Central-bank Governor Haruhiko Kuroda told lawmakers that securing confidence in the nation’s fiscal management is vital.
Abe’s government favors delaying the next increase in the sales levy until April 2017, according to LDP lawmakers who asked not to be named. Abe will probably call a general election for Dec. 14, according to two people with knowledge of the ruling Liberal Democratic Party’s strategy.
“The main focus is on whether Prime Minister Abe will announce snap elections and delay the sales-tax hike,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We’ve had a lot more speculation overnight along those lines which has been officially downplayed. Our view is that it’s looking more likely. That would increase the downside risks for the yen going forward.”
The pound weakened as Bank of England policy makers led by Governor Mark Carney lowered their forecast for growth to 2.9 percent in 2015 and 2.6 percent in 2016 in their quarterly Inflation Report today in London. That’s down from 3.1 percent and 2.8 percent in August.
The “specter” of economic stagnation is haunting Europe and developments in the world economy have crystallized some downside risks to growth in earlier projections, Carney told reporters in London while presenting the BOE’s Inflation Report. Annual increases in consumer prices could slow below 1 percent within months.
Traders have delayed bets for a 0.25 percentage point increase in the U.K. benchmark rate to beyond October, from February as recently as three months ago, according to forward contracts based on the sterling overnight interbank average, or Sonia.
The Bank of England is “probably waiting for that better inflation and wage data before they begin their tightening cycle,” said Jennifer Vail, head of fixed income at U.S. Bank Wealth Management in Minneapolis. “We do expect the BOE to be very measured in their pace and their approach toward their first rate hike. But we look at where the market is pricing BOE tightening and it’s probably too accommodative.”