Dollar Index Gains for 3rd Day as Fed Policy Shift Spurs Demand

The Dollar Index rose for a third day, surging after Federal Reserve Chairman Ben S. Bernanke made the case for reducing stimulus as the economy improves, sparking declines in emerging-market assets and commodities.

The U.S. currency is poised for its biggest weekly gain versus the yen in two months before reports next week that economists said will show U.S. home prices and durable-goods orders increased. Norway’s krone extended the largest weekly decline in 4 1/2 years as central bank Governor Oeystein Olsen said policy makers were aware they would trigger a slump by lowering their interest-rate outlook while Sweden’s currency fell against all 16 of its most-traded counterparts.

“It’s basically still dollar strength, post the Federal Open Market Committee’s meeting,” Geoffrey Yu, a senior currency strategist at UBS AG in London, said in a telephone interview. “That’s gradually being absorbed. It’s good to see that it can happen now in a stable manner. Dollar rising with risk on, I think that’s what we all need to see.”

The dollar rose 0.6 percent to 97.90 yen at 5 p.m. New York time, a 3.8 percent gain this week. The U.S. currency added 0.7 percent to $1.3122 per euro, reaching the strongest level since June 6. The yen gained 0.1 percent to 128.45 per euro.

Dollar Measure

The Dollar Index, which Intercontinental Exchange Inc. uses to monitor the greenback against the currencies of six U.S. trade partners, increased 0.5 percent to 82.318. It rose 1 percent on June 19 when the Federal Open Market Committee left the monthly pace of bond purchases at $85 billion, saying “downside risks to the outlook for the economy and the labor market” have diminished.

Norway’s krone dropped 1 percent to 6.0583 per dollar, touching the weakest level since July. The currency weakened 3.9 percent yesterday. The Swedish krona slipped 1.5 percent to 6.6712 to the greenback.

The rand strengthened for the first time in six days as a rally in metal prices boosted South Africa’s export prospects. The currency appreciated 0.8 percent to 10.1623 per dollar, paring its first weekly decline in three to 2.2 percent.

Options Positions

Trading in over-the-counter foreign-exchange options totaled $60.2 billion, compared with $51.4 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yuan exchange rate was $38.6 billion, the largest share of trades at 64 percent. Dollar-yen options were the second most actively traded, at $5.6 billion, or 9 percent.

Dollar-yuan options trading was 1,292 percent more than the average for the past five Fridays at a similar time in the day. U.S. dollar-yen options trading was 47 percent less than average.

The JPMorgan EMBI Global Index of developing-nation dollar bonds has slipped 4.3 percent this week, poised for the worst returns since October 2008. The Standard & Poor’s GSCI index of 24 commodities gained fell 1 percent after dropping 3.1 percent yesterday. Treasury 10-year yields climbed to the highest level since August 2011, touching 2.55 percent.

“The key takeaway this week is the fact that we’ve got bond yields” rising, Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., said in an interview on Bloomberg Television’s “Surveillance” with Sara Eisen. “It looks like they’re essentially here to stay and that’s putting the recovery of those commodity and emerging currencies very much at risk.”

Economic Data

The U.S. Commerce Department will say on June 25 that durable-goods orders rose 3 percent in May, expanding for a second month, according to a Bloomberg News survey of economists. An industry report the same day will show the S&P/Case-Shiller index of property values gained 10.6 percent in April from a year earlier, according to another survey.

“For the remainder of the year we think the dollar will rally, pretty much across the board,” said Alvin Tan, a director of foreign-exchange strategy at Societe Generale SA in London. “The Fed is becoming more hawkish relative to other central banks and the Bank of Japan is just starting on its massive quantitative-easing program. Monetary-policy divergence will drive the dollar ahead.”

The yen has fallen 2.3 percent this week against the euro, poised for the biggest slide since the period ended April 5, the same week the Bank of Japan said it will buy more than 7 trillion yen ($71 billion) of bonds every month.

The JPMorgan Global FX Volatility Index was at 11.42 percent after touching 11.51 percent, matching yesterday’s advance to the highest since June 2012. The average in the past year is 8.66 percent.

Before it's here, it's on the Bloomberg Terminal.