Dollar Snaps Three-Week Loss as Fed Moves Closer to Rate Move

U.S. Job Fair
Job seekers speak with recruiters during a career fair at San Francisco State University in San Francisco, California, U.S. Fewer Americans applied for unemployment benefits during the past four weeks than at any time in almost 15 years, signaling underlying strength in the labor market. Photographer: David Paul Morris/Bloomberg

The dollar is back on the upswing.

The U.S. currency snapped a three-week loss on speculation the Federal Reserve is inching closer to raising interest rates as the economy improves. A gauge of the greenback surged after jobless claims dropped to an almost 15-year low, boosting confidence that the Fed will increase borrowing costs this year for the first time since 2006.

“We remain pretty optimistic on the dollar,” Georgette Boele, a currency strategist at ABN Amro Bank NV, said by phone from Amsterdam Friday. “The strength of the economy is still there. I think people had a bit of doubt because of the weaker numbers recently, and now they’ve started to change their views.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 1.8 percent this week to 1,204.23 in New York. The greenback rallied 3.3 percent to $1.0604 per euro, near a 12-year high, and added 1.1 percent to 120.22 yen.

The U.S. currency has gained 7 percent this year, the best performer after the Swiss franc, among a basket of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes.

Futures Positions

Net bullish bets for the dollar to strengthen against the euro by hedge funds and money managers remained at almost a record, according to Commodity Futures Trading Commission data. Futures positions betting on a stronger greenback versus the shared currency were at 215,258 contracts as of April 8, down from the record 226,560 reached the week before.

Fewer Americans applied for unemployment benefits during the past four weeks than at any time in almost 15 years, signaling underlying strength in the labor market.

“The improving jobless-claims data helped to ease concerns about what’s happening in the American economy,” Karl Schamotta, director of foreign-exchange research and strategy at Cambridge Global Payments in Toronto, said by phone Friday. “Rate hikes are still on the menu.”

Fed Bank of Richmond President Jeffrey Lacker said he continues to favor a first interest rate increase in June because recent soft readings on the economy will probably prove temporary.

Rally Time

The U.S. currency has gained for the past nine months, spurred by a recovering U.S. labor market and signs that the Fed is getting closer to tightening monetary policy. That contrasts with central-bank peers in Japan and Europe, where unprecedented stimulus has debased currencies.

The Federal Open Market Committee was split at its meeting last month on when to begin raising rates from near zero. Several participants wanted to normalize policy starting in June, while others favored later in the year, according to minutes of the March 17-18 gathering released April 8.

Federal fund futures show a 58 percent probability the central bank will raise borrowing costs from virtually zero at the December gathering, according to data compiled by Bloomberg. That’s down from 78 percent before the Fed meeting.

U.S. retail sales rose 1 percent last month, according to a survey of analysts and economists before the data are released April 14. Retailers were hurt in February as bitter cold swept over parts of the U.S., discouraging consumer purchases.

“Next week, the market will continue to focus on U.S. indicators, which are likely to confirm that growth is picking up,” and will support the dollar’s upward trend, Nordine Naam, a strategist at Natixis SA in Paris, said in a note.

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