Dollar Gains Before Jobs Data as Morgan Stanley Raises Forecast

The dollar strengthened for the first time in three days against the yen before a U.S. government report that economists said will show employers added the most jobs in three months in September.

The Bloomberg Dollar Spot Index headed for a seventh weekly gain, its longest run since June 2010, as improving U.S. data add to speculation the Federal Reserve will raise interest rates next year. The yen fell versus most of its 16 major counterparts as the Bank of Japan boosted bill purchases and Governor Haruhiko Kuroda said a weakening currency was unlikely to hurt the economy. New Zealand’s dollar declined.

“We’ve taken our dollar forecasts higher pretty much across the board,” said Ian Stannard, the London-based head of European foreign-exchange strategy at Morgan Stanley. “The market is expecting a good payrolls number. We’ll see the dollar well supported into the data.”

The dollar rose 0.5 percent to 108.96 yen at 6:51 a.m. New York time after touching 110.09 yen on Oct. 1, the strongest level since 2008. It fell 1.1 percent during the past two sessions. The U.S. currency gained 0.4 percent to $1.2621 per euro after appreciating to $1.2571 on Sept. 30, the strongest since September 2012. The yen fell 0.1 percent to 137.53 against the 18-member common currency.

Dollar Forecasts

Morgan Stanley predicts the greenback will strengthen to $1.14 per euro by the third quarter of 2015, after yesterday revising its estimate from $1.20. It will rise to 112 yen in the same period, up from a previous forecast of 110, the bank said. It accurately predicted in September 2013 that the dollar would rise 6.7 percent to end the year at 105 yen.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, climbed 0.3 percent to 1,070.99. The gauge has advanced 0.3 percent this week.

U.S. employers added 215,000 workers last month, up from 142,000 in August, according to a Bloomberg News survey of economists before today’s Labor Department report. The jobless rate held at 6.1 percent, matching the lowest level since July 2008, a separate survey showed.

“If we get a weaker number we could see the dollar coming off slightly but that should not impact the longer-term bullish story,” Morgan Stanley’s Stannard said.

Rate Expectations

The dollar has jumped 6.8 percent in the past three months, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes as investors bet the Fed will raise interest rates next year. The yen weakened 0.5 percent and the euro declined 1.8 percent.

Traders see about a 73 percent chance the Fed will raise its target for overnight lending between banks by its September 2015 meeting, futures data compiled by Bloomberg showed today. Policy makers have kept the target rate in a range of zero to 0.25 percent since 2008 to support the economy.

The yen fell the most in a week versus the dollar as the Bank of Japan bought a record 3.5 trillion yen in treasury bills, part of its policy of monetary easing to spur inflation.

A weak currency isn’t a minus for the economy overall and won’t cause problems if it reflects the nation’s fundamentals, the BOJ’s Kuroda said in parliament in Tokyo.

Prime Minister Shinzo Abe also moved to address mounting concern that a weakening yen would harm small companies by pledging assistance for those hurt by cost increases. The trade ministry unveiled an initiative pressing large businesses to assist small firms to pass on rising input costs, aiding policy makers’ broader plan, known as Abenomics, to kindle sustained inflation in an economy marred by two decades of stagnation.

Further Weakness

“The yen is still weaker today,” Derek Halpenny, the head of global-markets research at Bank of Tokyo-Mitsubishi UFJ in London, wrote in an e-mailed note. “The initiative itself is telling in that it conveys a government perhaps preparing for further yen weakness ahead.”

The euro also weakened against the dollar as a purchasing managers index showed services and manufacturing in the euro region expanded less than a flash estimate last month. The gauge slipped to 52 in September, compared with a predicted 52.3.

New Zealand’s dollar dropped against most of its 16 major counterparts amid speculation the central bank will maintain efforts to weaken the currency to support exporters. The Reserve Bank of New Zealand said on Sept. 29 it sold currency in August in its biggest intervention in the foreign exchange markets in seven years.

“This is a good time for the Reserve Bank to be selling the currency and being able to get some kind of impact,” Hamish Pepper, a foreign-exchange strategist at Barclays Plc in Singapore, said on Oct. 1. “It’s come at a time when the U.S. dollar seems to have really gained some momentum.”

The kiwi fell 0.6 percent to 78.54 U.S. cents after declining to 77.09 cents on Sept. 29, the lowest level since August 2013.

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