Dollar Has Worst Day This Month After Rallying Since Jobs Report

  • Greenback index reached highest level in more than 10 years
  • Chances of Fed raising rates in December reaches 68 percent

The dollar had its worst day in November after climbing to the highest level in more than a decade as traders consider the timing and pace of interest-rate increases by the Federal Reserve.

The U.S. currency struggled to extend gains that pushed it at least 1 percent higher against all of its 10 developed-nation counterparts this month. The probability that the Fed will raise rates by next month was 68 percent, compared with 50 percent at the end of October, after a Labor Department report last week showing the biggest increase in jobs this year backed the case for the Fed to act at its December policy meeting.

"The dollar’s had a big move in three weeks’ time -- there are a lot of people who’d expect a bigger correction," said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co. in New York. "But how flat the correction is shows you people aren’t really in it and people aren’t as long the dollar as earlier this year."

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major counterparts, fell 0.3 percent to 1,229.43 as of 5 p.m. New York time, after slumping the most since Oct. 30. The gauge has rallied 1.6 percent this month and reached the strongest level Tuesday in more than a decade.

The dollar fell 0.2 percent to $1.0747 per euro after appreciating to $1.0675 on Tuesday, the strongest since April 23. The U.S. currency dropped 0.2 percent to 122.86 yen.

Policy Dilemma

The dollar’s surge is proving a double-edged sword for U.S. policy makers weighing how far to tighten policy. The Fed has held its short-term interest-rate target at virtually zero since December 2008 to bolster inflation and economic growth.

While the appreciation indicates that markets are preparing for the Fed’s first rate increase since the financial crisis, it risks further both damping inflation and damaging the profitability of U.S. companies. Two out of three companies in the Standard & Poor’s 500 Index that reported earnings through Oct. 22 mentioned the strong dollar or currency-related woes in conference calls with analysts and investors.

That pain companies are feeling from a strong dollar may intensify next year.

“Why shouldn’t the dollar move 10 percent next year? Because all the conditions are falling into place,” said Andrew Milligan, the Edinburgh-based head of global strategy at Standard Life Investments Ltd., which manages about $393 billion. “Most valuations that I’ve seen suggest the U.S. dollar is moderately expensive, but not ridiculously expensive. It’s not stretched,” he said during an interview in New York.

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