Dollar Rises to 11-Month High as Yellen Notes Employment Gains

The dollar reached an 11-month high against the euro after Federal Reserve Chair Janet Yellen cited jobs gains made during the five years of economic recovery while noting slack remains in the U.S. labor market.

The U.S. currency rose to the highest level since February against its major peers as Yellen’s remarks in Jackson Hole, Wyoming, supported speculation the Fed will raise interest rates next year. The euro pared losses after European Central Bank President Mario Draghi said he’s confident the stimulus put in place will boost demand in the economy. Brazil’s real dropped after as the nation’s current account deficit widened last month more than forecast.

“The market reaction has been positive for the dollar,” Brian Daingerfield, currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a phone interview. “We’re very used to Chair Yellen’s view of the labor market being generally considered on the dovish side. Today’s commentary was neither particularly hawkish or dovish.”

The U.S. dollar gained 0.3 percent to $1.3242 per euro at 5 p.m. in New York, after appreciating to $1.3221, the strongest level since Sept. 9. The greenback added 0.1 percent to 103.95 yen after advancing to 104.18, the highest since Jan. 23. The euro fell 0.2 percent to 137.64 yen.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, increased 0.1 percent to 1,028.81, touching the highest level since Feb. 4. The measure is up 0.9 percent this week and this year.

Draghi’s Speech

Europe’s 18-nation currency trimmed losses after Draghi said in a speech in Jackson Hole that fiscal policy should play greater role in aiding economic recovery, reducing speculation the central bank will ease monetary policies further. The ECB slashed one of its main interest rates to negative on June 5.

“There’re some people who think even if the ECB were forced to do quantitative easing, the structural concerns in the euro zone economy doesn’t necessarily dictate quantitative easing will be successful,” Andrew Wilkinson, chief market analyst at Interactive Brokers LLC, said in a phone interview from Greenwich, Connecticut.

Hedge funds and other large speculators increased bets on declines in the euro against to the dollar to the most since July 2012. The difference in the number of wagers on a decline compared with those on a gain -- so-called net shorts -- was 138,825 on Aug. 19, compared with 126,017 on Aug. 12, according to data from the Washington-based Commodity Futures Trading Commission.

Real Drop

Brazil’s deficit in the current account, the broadest measure of trade in goods and services, widened to $6 billion from $3.3 billion a month earlier, the central bank said in a report. Foreign direct investment during the same period rose to $5.9 billion from $3.9 billion. Economists surveyed by Bloomberg forecast a gap of $5.8 billion and investment of $5.4 billion.

The real weakened 0.4 percent to 2.2775 per U.S. dollar, eroding the year-to-date gain to 3.7 percent.

Canada’s consumer price index rose 2.1 percent in July from a year ago following June’s 2.4 percent pace, Statistics Canada said today. Economists surveyed by Bloomberg News forecast a 2.2 percent pace, according to the median of 20 responses.

“Initially, we had a weakening in the Canadian dollar as everyone’s eyes went to CPI, which was softer than expected, so that provides some more leeway for the Bank of Canada to maintain its neutral tone,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by telephone from Toronto.

Canada Reaction

The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, was little changed at C$1.0943 per U.S. dollar. The currency weakened to as low as C$1.0980, approaching the low of C1.0986 reached on Aug. 6, the least since May.

“The economy has made considerable progress in recovering from the largest and most sustained loss of employment” since the Great Depression, Yellen said in a speech at the Kansas City Fed’s annual economics conference. Even so, she underscored the Federal Open Market Committee statement last month that “underutilization of labor resources still remains significant.”

Yellen’s remarks appeared in line with the message from minutes of the July FOMC meeting, which showed officials growing more aware that labor markets are approaching full employment. She has said the central bank has no “mechanical answer” for when to raise rates, and that before doing so policy makers must be certain the economy is on a solid footing.

Dollar Demand

“People are buying dollar on the fact that we’ve now passed the event risk of Yellen’s speech,” said Joe Manimbo, a market analyst in Washington at Western Union Business Solutions, a unit of Western Union Co. “It wasn’t overly hawkish, it seems status quo for now. At the same time, she didn’t try to quell early-rate-hike expectation.”

Futures traders saw about a 54 percent chance the Fed will raise its key interest rate to at least 0.5 percent by July, according to data compiled by Bloomberg. The central bank has kept its benchmark rate at almost zero since December 2008.

The dollar has strengthened 1.6 percent in the past month, the best performer among the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes after Norway’s krone. The euro fell 0.3 percent and the yen declined 1.1 percent.

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