Dollar Climbs to 2-Week High as Fed Hike Odds Jump After Yellen

Fischer: Dollar Not Most Fundamental Productivity Factor
  • BOJ’s Kuroda says there’s ‘ample space’ to ease policy further
  • Traders’ focus shifts to U.S. payrolls data later this week

A gauge of the dollar rose to the highest in more than two weeks after Federal Reserve officials spurred bets that the U.S. central bank will increase interest rates as soon as next month.

The U.S. currency rose for the sixth day in seven as futures indicated a 34 percent chance that the Fed will raise rates in September, up from 24 percent a week earlier. U.S. economy watchers are turning their attention to payrolls data due later this week. The yen weakened for a fourth day against the greenback after Bank of Japan Governor Haruhiko Kuroda reiterated his readiness to ease monetary policy further.

“Dollar appreciation is likely to resume over the balance of the year,” Atul Lele, who manages $2 billion as chief investment officer of Nassau, Bahamas-based Deltec International Group, wrote in a note to clients. “The factors that are contributing to the strong cyclical and secular U.S. dollar outlook remain,” including economic growth and the nation’s divergent monetary policy from other central banks.

The dollar’s advance trimmed its loss this year to 4.2 percent. Currency investors’ sentiment has shifted back and forth in recent weeks on how aggressive the Fed will be after it raised borrowing costs in December for the first time since June 2006.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, rose 0.1 percent as of 5 p.m. New York time, the highest level since Aug. 9. The greenback gained 0.1 percent to $1.1189 per euro and strengthened 0.1 percent to 101.92 yen.

Fed Chair Janet Yellen’s remarks Friday were “considered to be relatively hawkish,” said Thu Lan Nguyen, a foreign-exchange strategist at Commerzbank AG in Frankfurt. “That was confirmed by some of her colleagues who spoke on Friday, which suggest that there is a case for a September hike, or maybe even two rate hikes this year. This has pushed expectations in the market and thus the U.S. dollar.”

The greenback rose against most of its major peers after Yellen said at a central bank retreat in Jackson Hole, Wyoming, that the case for tightening U.S. policy had strengthened, a message later reinforced by Vice Chairman Stanley Fischer, who said a rate increase in September is possible. Speaking at the same symposium, the BOJ’s Kuroda said there’s “ample space for additional easing,” and that he would bolster stimulus without hesitation if warranted.

U.S. employers added 180,000 jobs in August, according to the median estimate of a Bloomberg survey of economists before Friday’s payrolls data. The monthly labor-force number has exceeded expectations in the past two readings, pointing to renewed vigor in the employment market.

The Fed and the BOJ have their next policy meetings on Sept. 20-21.

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