Heads Dollar Wins, Tails It Rises: It's All Good for Greenback

  • Even weak labor data unlikely to end rally, Credit Suisse says
  • Signs of slower U.S. economy may mean ECB, BOJ do more

U.S. economic strength is a boon for the dollar, and evidence of weakness may not prove much of an obstacle. The rally in the greenback is set to stay on course in either scenario, say strategists at Credit Suisse Group AG.

The dollar has gained against major peers since Sept. 17, when the Federal Reserve kept its target rate near zero. For a hint at the currency’s path forward, traders are fixated on Friday’s release of September U.S. jobs figures.

Data showing a robust labor market stand to bolster the dollar as traders ramp up bets the Fed will lift its benchmark rate this year. Yet the opposite result, where expectations for a 2015 increase fade, may not derail the greenback, Credit Suisse analysts said in a note Wednesday. That’s because signs the world’s biggest economy is cooling may help spur the European Central Bank and the Bank of Japan to keep adding monetary stimulus, undermining the euro and yen.

“A weaker U.S. adds to the theme of weaker global growth generally, and the focus then goes to which central banks feel the most pressing need to do something in response to that,” said Shahab Jalinoos, the New York-based global head of foreign-exchange strategy at Credit Suisse. The bank placed fourth in Bloomberg’s third-quarter foreign-exchange rankings, after topping the list the prior quarter.

The Intercontinental Exchange Inc.’s Dollar Index, which tracks the U.S. currency against six major counterparts, rose 0.9 percent in the third quarter. The index is up 1.7 percent since the Fed’s September decision.

Strength Call

The dollar traded at about 119.75 yen and $1.1190 per euro at 1:35 p.m. in New York Thursday. Credit Suisse forecasts the dollar will end the year at 122 yen and $1.10 per euro.

U.S. employers probably added 201,000 nonfarm workers last month, after a gain of 173,000 in August, while the unemployment rate held at 5.1 percent, the lowest since 2008, according to the median estimate in a Bloomberg survey of economists.

Expectations for a 2015 Fed increase, already dimming last quarter amid slowing Chinese economic growth, slid further after the central bank held rates steady last month and lowered its outlook for future increases.

Traders see a 43 percent probability of a move by the Fed’s Dec. 15-16 meeting, according to futures data compiled by Bloomberg. The chances are 51 percent by the January meeting and 64 percent by the March gathering, based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

Both the ECB and BOJ have benchmark rates at or near record lows, with the ECB’s deposit rate now below zero.

Euro-area inflation turned negative in September for the first time in six months. Two-thirds of economists in a Bloomberg survey last month said the ECB will add to its 1.1 trillion-euro ($1.2 trillion) asset-purchase plan.

In Japan, industrial production data showed a decline for August, prompting some analysts to say gross domestic product may have shrunk in the three months ended September, pushing the nation back into recession.

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