JPMorgan Says Dollar Rally May Extend 6 Months After Fed Liftoff

  • Greenback has advanced 1.6% in November, fueled by jobs gains
  • Federal Reserve speakers stress gradual pace of rate increases

JPMorgan Chase & Co. says a rally in the dollar may stretch for another six months if the Federal Reserve raises interest rates as expected in December.

The Bloomberg Dollar Spot Index reached the highest level in data going back to 2005 this week on speculation that a strengthening U.S. labor market will pave the way for the central bank to boost borrowing costs at its meeting next month. After liftoff, the pace of rate increases is likely to be gradual, according to several Fed policy makers who spoke this week.

JPMorgan is among the world’s biggest currency traders, including Deutsche Bank AG and Barclays Plc, that are expecting the dollar to advance as the Fed tightens monetary policy. The currency’s gains will probably peak in the middle of next year, said John Normand, head of foreign exchange, commodities and international rates research in London at JPMorgan.

"The bulk of the move is probably going to be in the first three to six months of liftoff," said Normand, whose bank is the world’s fourth largest currency trader, according to Euromoney magazine. 

The U.S. currency ended the week little changed at $1.0773 per euro in New York. The Bloomberg gauge, which tracks the greenback versus 10 major counterparts, was stable at 1,229.63. The greenback will strengthen to $1.06 per euro and 125 yen by the mid-2016, according to the median estimates in Bloomberg surveys of analysts.

Dollar Swings

The dollar has risen almost 1.6 percent this month, bolstered by an employment report on Nov. 6 that showed U.S. payrolls surged 271,000, which exceeded all estimates in a Bloomberg survey of economists. The currency swung between gains and losses for the past eight months as turmoil in the Chinese economy and lackluster U.S. indicators caused traders to question the case for higher rates.

New York Fed President William C. Dudley said the conditions for a rate increase “could soon be satisfied,” in his speech to the Economic Club of New York on Nov. 12. “After liftoff commences, I expect that the pace of tightening will be quite gradual,” he said.

"The trend is still up for the dollar,” said Dan Heckman, senior fixed-income strategist in Kansas City, Missouri, at U.S. Bank Wealth Management, which oversees about $126 billion. He expects the currency to climb at a slower clip and trade in narrower ranges for the rest of the year.

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