Dollar Rises to Highest in Month on Jobless Claims Drop

The dollar touched the highest level in more than a month against a basket of peers as unemployment applications unexpectedly dropped to an eight-year low, another sign the U.S. labor market is gaining momentum.

The euro climbed from an eight-month low after manufacturing growth unexpectedly quickened in July. The pound dropped for a seventh day versus the dollar after U.K. retail sales rose less in June than economists forecast. New Zealand’s dollar slid the most in nine months as the nation’s central bank warned of the potential for a “significant fall” in the currency.

“Recent U.S. data has been consistent with the view that the U.S. is recovering nicely,” Mark McCormick, a macro strategist at Credit Agricole SA in New York, said via Internet message. “The macro story is still supportive of a dollar rally in the second half. We look for the dollar to gather momentum once we hit September, so not sure if this mini-rally has legs.”

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major counterparts, rose 0.2 percent to 1,012.31 at 5 p.m. in New York after touching 1,012.54, the most since June 18.

The euro was little changed at $1.3464 after earlier falling to $1.3438, the lowest since Nov. 21. The 18-nation common currency strengthened 0.3 percent to 137.08 yen. The dollar gained 0.3 percent to 101.82 yen and touched 101.86, the highest since July 9.

Kiwi Plummets

The kiwi weakened by at least 0.9 percent against all 31 of its major peers after Reserve Bank Governor Graeme Wheeler said the currency’s level is “unjustified and unsustainable.” He also signaled a policy pause after the fourth interest-rate increase this year.

“It’s essentially a pretty dovish commentary from the RBNZ and the kiwi’s getting hit on that,” said Alvin Tan, a foreign-exchange strategist at Societe Generale SA in London. “The long-kiwi trade has been getting crowded. We like buying the Australian dollar versus the kiwi.” A long position is a bet a currency will appreciate.

New Zealand’s dollar slid 1.5 percent to 85.73 U.S. cents, its biggest decline on a closing basis since Aug. 21.

Today’s drop pared the kiwi’s advance this year to 4.9 percent, still the most after the Aussie’s 6.3 percent jump among 10 developed-nation currencies tracked by Bloomberg Correlation Weighted Indexes. The greenback was little changed, the euro weakened 2.2 percent and the yen added 3.9 percent.

Aussie, Pound

Australia’s currency fell even as the preliminary China Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 52, compared with the 51 median estimate of analysts surveyed by Bloomberg News and last month’s reading of 50.7. Numbers above 50 indicate expansion.

The Aussie slid 0.4 percent to 94.19 U.S. cents after earlier rising to 94.71 cents, the highest level since July 2. China is Australia’s largest trading partner.

The pound declined to the lowest in almost month as U.K. sales including auto fuel increased 0.1 percent from May, the Office for National Statistics said today in London. The median forecast of economists in a Bloomberg survey was for an increase of 0.3 percent.

Sterling declined 0.3 percent to $1.6986 and reached $1.6967, the lowest since June 25. The U.K. currency weakened 0.3 percent to 79.26 pence per euro.

Economic Gains

The euro erased a drop after Markit Economics said its manufacturing index for the euro area rose to to 51.9 in July from 51.8 last month. Economists in a Bloomberg News survey predicted a reading of 51.7. For the U.S., a similar gauge scheduled for release today is projected to increase to 57.5 from 57.3 in June, a separate survey showed.

The dollar extended gains versus the yen after jobless claims fell by 19,000 to 284,000 in the week ended July 19, the fewest since February 2006 and lower than any economist surveyed by Bloomberg forecast, a Labor Department report showed today in Washington.

“The market is definitely reacting -- dollar-yen was already through new highs on the week and since the data has rallied,” Brad Bechtel, managing director of Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “Monetary policy remains ultra-accommodative and the economy is cruising along in the right direction.”

Fed Slackers

The jobless data follow a report that showed employers added 288,000 jobs in June, lifting the average monthly advance so far in 2014 to almost 231,000. If that pace is sustained, it would be the best year since 1999. The unemployment rate dropped last month to an almost six-year low of 6.1 percent.

Federal Reserve Chair Janet Yellen said last week borrowing costs may rise sooner than forecast “if the labor market continues to improve more quickly than anticipated,” adding that the central bank must press on with stimulus because “significant slack” remains.

While the jobless claims data are “obviously consistent” with a strengthening labor market, “I highly doubt that we settle out at such a low level,” said Stephen Stanley, the Stamford, Connecticut-based chief economist at Pierpont Securities LLC.

“The labor market is better, but it’s not that much better,” he said today in a client note. “Chair Yellen and the doves at the Fed are quite eager to convince you that we have heaps of slack in the labor market still, well beyond what the 6.1 percent unemployment rate would usually suggest.”

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