Dollar Reaches Highest in 4 Months as Jobless Claims Drop

The dollar touched a four-month high as initial-jobless claims fell last week, a sign the labor market may be recovering.

Canada’s dollar pared a gain after Prime Minister Stephen Harper said the central bank’s monetary policy is appropriate. The greenback dropped versus the euro as the cost of living in the U.S. climbed in December by the most in six months. The Turkish lira dropped to a record, while the Australian dollar tumbled to the weakest since 2010.

“It shows in the markets overall things seem to be improving,” Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York, said in a phone interview. “In light of employment data being fairly stable, the focus is going to turn to the fact that we’re not getting much inflation pressure.”

The Bloomberg Dollar Spot Index, which measures the currency against 10 major counterparts, was little changed at 1,029.78 at 5 p.m. New York time after advancing to 1,032.01, the highest since Sept. 9.

The dollar dropped 0.2 percent to 104.35 yen after rising 1.5 percent in the previous two sessions. It fell 0.1 percent to $1.3620 per euro. The 18-nation currency dropped 0.1 percent to 142.12 yen.

Policy Appropriate

Bank of Canada Governor Stephen Poloz dropped a bias to raise interest rates at an Oct. 23 policy decision, helping to fuel a 5.8 percent decline in the Canadian dollar since then.

“We have every reason to have confidence that the Bank of Canada has appropriate monetary policies in place,” Harper said in an interview in his Ottawa office today. More important than the movement in the Canadian dollar is whether it is “at an appropriate level given various economic realities,” and that the weaker currency reflects strength in the U.S. dollar, which “has been undervalued.”

The loonie traded little changed at C$1.0930 per dollar after gaining as much as 0.3 percent.

The Turkish lira weakened to a record after HSBC Bank AS said the nation risks stagflation as its worst political crisis in a decade hurts consumer sentiment.

The currency depreciated as much as 1 percent to a record 2.2124 per dollar and traded at 2.2069, the fourth day of declines.

Turkey’s Stagflation

“It is obvious that the Turkish economy is heading for stagflation fast,” Fatih Keresteci, a strategist at HSBC in Istanbul, wrote in an e-mailed note today. “The lira’s depreciation may gain pace if the central bank does not change interest rates at the MPC meeting next week.”

Argentine peso’s 3.8 percent decline led losses among 24 emerging-market currencies tracked by Bloomberg after the. The rand slipped 3.6 percent against the greenback this year, while the lira depreciated 2.7 percent.

Demand for emerging-market currencies is waning on speculation faster growth and slowing stimulus in the U.S. will boost demand for assets denominated in the dollar at a time when economies from South Africa to Turkey are cooling. The lira has also slumped as the government struggled to contain a corruption scandal, while the rand has been diminished by concern that labor-market instability at its mines will hurt exports.

In Australia, jobs decreased by 22,600 last month, following November’s revised 15,400 gain, the statistics bureau said today. That compares with a 10,000 increase predicted by economists. The unemployment rate held at 5.8 percent, the highest in four years.

Aussie Drops

The market-implied probability that the Reserve Bank of Australia will reduce its record-low benchmark interest rate by July rose to 43 percent from 24 percent yesterday, swaps data compiled by Bloomberg show.

“We continue to estimate the fair value of the Aussie in the low-to-mid 80s,” said David Forrester, a senior vice president for Group-of-10 foreign-exchange strategy at Macquarie Bank Ltd. in Singapore. “The RBA will maintain an easing bias but it will want to sit back and let the Aussie dollar do some of the work.”

Australia’s dollar slid 1.1 percent to 88.21 U.S. cents after falling to 87.77, the weakest since August 2010. The Aussie dropped 1.2 percent to NZ$1.0557 after trading at NZ$1.0543, the lowest since December 2005.

The dollar fell versus the yen after the consumer-price index gained 0.3 percent in December, the biggest advance since June and followed no change the prior month, a Labor Department report showed today in Washington. It matched the median forecast of 87 economists surveyed by Bloomberg. It rose 1.5 percent in the past year, below the Federal Reserve’s 2 percent target.

‘Benign Inflation’

The core measure of U.S. consumer prices, which excludes food and fuel, rose 0.1 percent, restrained by a record decrease in medical commodities including prescription drugs.

“You can make an argument that benign inflation could make room for the Fed to stay accommodative for longer -- the numbers might have prompted some people to take profit,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “The jobs number was positive, it shows the jobs market is gradually improving. The overall outlook of the dollar remains positive.”

Jobless claims decreased by 2,000 to 326,000 in the week ended Jan. 11 from a revised 328,000 in the prior period, a Labor Department report showed in Washington. The median forecast of 51 economists surveyed by Bloomberg called for 328,000. A Labor Department spokesman said no states were estimated and there was nothing unusual in the data.

The number of people continuing to receive jobless benefits jumped by 174,000 to 3.03 million in the week ended Jan. 4, the highest since July.

While trimming stimulus at its meeting on Dec. 18, the Fed reinforced its assurance that interest-rate increases are far off by saying its benchmark rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent.” It has kept its key borrowing rate at a record-low zero to 0.25 percent since December 2008.

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