Dollar Rises to 6-Week High Versus Yen as Jobs Gain Backs Taper

The dollar rose to a six-week high against the yen as U.S. employment gains exceeded forecasts, boosting speculation that the Federal Reserve will continue to pare monetary stimulus that’s seen as debasing the currency.

The U.S. currency rallied as the Labor Department reported nonfarm payrolls increased 175,000 in February, compared with the median estimate of 149,000 in a Bloomberg survey of economists. Canada’s dollar declined versus the majority of its most-traded counterparts after employers unexpectedly eliminated jobs last month. The euro reached the highest level in more than two years versus the dollar as bets on further European Central Bank stimulus waned, boosting demand for the 18-nation currency.

“The market was relatively surprised by the strong NFP data and the dollar has benefited,” Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc., said in a phone interview. “Everyone had already lowered their expectations this week. If anything, it continues to shows that the Fed should continue in the same direction and that tapering should continue.”

The dollar gained 0.2 percent to 103.28 yen at 5 p.m. in New York, reaching the strongest level since Jan. 23. The euro added 0.1 percent to $1.3875 after touching $1.3915, the highest level since Oct. 31, 2011. The shared currency gained 0.3 percent to 143.33 yen.

Futures Positions

Hedge funds and other large speculators increased their bets that the euro will rise against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers on a gain in the euro compared with those on a decline, known as net longs, was 23,452 on March 4, the most since Dec. 31.

The Chinese yuan posted its biggest weekly gain since October on speculation the central bank has ceased engineering a decline in the currency to discourage one-way appreciation bets. The People’s Bank of China raised the currency’s daily reference rate by 0.08 percent today, the biggest increase since Jan. 24, to 6.1201 per dollar.

China’s currency strengthened 0.3 percent this week to 6.1280 per dollar in Shanghai, according to China Foreign Exchange Trade System prices. The currency closed 0.2 percent lower today.

The South African rand was the biggest loser among major currencies tracked by Bloomberg, falling 1.2 percent to 10.7295.

Canada Jobs

Canada’s dollar declined as a 7,000 jobs drop in February revived speculation the central bank may need to cut interest rates to bolster economic growth. The currency depreciated 0.9 percent to C$1.1087, after falling the most since Feb. 19.

The February U.S. employment increase followed a revised 129,000 gain the prior month that was larger than initially estimated. Unemployment rose to 6.7 percent from 6.6 percent as more people entered the labor force and couldn’t find work.

“We got a relief bounce in employment, and this is encouraging for the U.S. economy,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA, said by phone from New York. “It’s consistent with tapering at the current pace, and that’s why we’re seeing the dollar rise.”

Frigid temperatures and heavy snow in the Northeast and Midwest have weighed on recent economic data. A report from the Commerce Department last month showed retail sales declined in January by the most since June 2012, falling 0.4 percent after a 0.1 percent drop in December. Housing starts dropped 16 percent in January from the prior month, data on Feb. 19 showed.

Fed Policy

Central bank policy makers are focusing on the job market to help guide the pace at which they’re reducing stimulus. The Federal Open Market Committee’s next meeting ends March 19. The Fed will continue cutting monthly bond purchases by $10 billion per meeting, based on a Bloomberg survey of economists.

The Fed’s view on the economy could be complicated by weather distortions.

“What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to a softer outlook,” Fed Chair Janet Yellen said while speaking to the Senate Banking Committee Feb. 27.

The ECB left its benchmark interest rate at 0.25 percent at a meeting in Frankfurt yesterday as forecast by 40 out of 54 economists surveyed by Bloomberg News. The other 14 were predicting a rate cut.

Price Levels

Euro-area inflation, which was at 0.8 percent in February, will accelerate to 1.7 percent in the fourth quarter of 2016, according to ECB forecasts. Consumer prices are projected to rise 1 percent this year. ECB officials see inflation at 1.3 percent in 2015 and an average rate of 1.5 percent in 2016.

“Expectations for further easing have been pushed back, creating pressure on the euro to rise toward $1.40,” said Minori Uchida, the head of global-market research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “But as the euro rises, it’ll increase disinflationary pressure, eventually necessitating more stimulus.”

The ECB said today that banks plan to repay 11.4 billion euros ($15.8 billion) in three-year loans next week, the biggest repayment since Dec. 23. Europe’s central bank previously said on Feb. 28 that banks would repay 3 billion euros this week.

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