Dollar Rallies Versus Euro in Longest Streak Since 2012 on Fed

The dollar rallied against the euro in the longest stretch in more than two years as data from housing to jobless claims signaled faster economic growth, bolstering speculation the Federal Reserve will raise interest rates next year.

The greenback gained as Fed Chair Janet Yellen’s remarks in Jackson Hole, Wyoming, noted jobs gains made during the five years of economic recovery. The pound touched its lowest level since April as U.K. inflation rose less than forecast. The Commerce Department may report Aug. 26 that durable goods orders increased 7.6 percent in July, according to a Bloomberg survey.

“The market saw further evidence of monetary-policy divergence in the Group of 10,” Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said in a phone interview. “The dollar is the main story, but sterling to some extent as well. Currencies where central banks are turning more hawkish are doing well, but it’s been mostly about the dollar.”

The dollar gained 1.2 percent to $1.3242 per euro in New York, its sixth-straight weekly rally, the longest since the period ending Jan. 13, 2012. The greenback reached $1.3221, the strongest level since Sept. 9. The U.S. currency added 1.6 percent to 103.95 yen after advancing to 104.19, the highest since Jan. 23. The euro rose 0.4 percent to 137.64 yen.

Winners, Losers

Australia’s dollar has gained 4.5 percent against the U.S. dollar this year, the most among major currencies, according to data compiled by Bloomberg. Sweden’s krona has lost the most, down 6.9 percent.

JPMorgan Chase & Co.’s Global FX Volatility Index rose as high as 6.23 percent on a closing basis this week, up from an all-time low on of 5.29 percent on July 3.

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.

European Central Bank President Mario Draghi said yesterday that policy makers are prepared to add more monetary stimulus and called on member governments to do more with spending to help the euro-area economy.

ECB Policy

“We stand ready to adjust our policy stance further,” the ECB president said yesterday in the text of a speech at the economics conference in Jackson Hole. The remarks come one year after the end of the currency bloc’s longest-ever recession, as the economy has stalled, unemployment remains at almost a record high and inflation is the weakest in almost five years.

Minutes of the Bank of England’s August meeting showed its unanimity on rates was split for the first time in more than three years. BOE Governor Mark Carney said in June that investors were underestimating the prospect of a 2014 rate increase.

Data published by the Office for National Statistics on Aug. 19 showed the annualized rate of consumer-price inflation fell to 1.6 percent in July from a year earlier, compared with 1.9 percent in June.

“Sterling needs to weaken,” James Shugg, a senior economist at Westpac Banking Corp. in London, said by phone. “Perhaps Carney provided a bit too much market commentary.”

The pound weakened 0.7 percent to $1.6572 and reached $1.6562, the lowest level since April 4.

Economic Performance

Fewer Americans than forecast applied for unemployment benefits last week, a Labor Department report showed on Aug. 21. Purchases of previously owned homes rose in July to a 5.15 million annualized pace, a 10-month high, according to data from the National Association of Realtors. The forecast gain in durable goods orders would be up from a 1.7 percent increase in June.

“Most of the activity indicators were quite solid, and I think, on balance, the data also supported the dollar,” BNP’s Serebriakov said. “Business investment is a key part of any recovery. If we see a strong reading there it could be an indication the pace of growth is accelerating.”

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.

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 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.”

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