Dollar Rises to 4-Year High as Jobs Gains Top Forecast

The dollar climbed to a four-year high as the U.S. employment rate fell to the lowest since 2008 and the economy added more jobs than forecast, bolstering the case for the Federal Reserve to raise interest rates next year.

The Bloomberg Dollar Spot Index posted a seventh week of gains, the longest streak since June 2010, after Labor Department figures showed the unemployment rate dropped to 5.9 percent and employers added 248,000 workers. The pound dropped below $1.60 for the first time in almost a year and the euro threatened to breach $1.25 for the time in two years. The dollars of New Zealand and Australia plunged at least 1.5 percent.

“This data point, obviously combined with what they have been observing in the labor market for the better part of 2014 - - the trend is pretty favorable,” Roger Bayston, senior vice president and director of fixed income at the Franklin Templeton fixed-income group in San Mateo, California, in a phone interview. “The unemployment numbers today confirm that the U.S. economy is doing much better than” the economies of the euro zone and Japan.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 1.1 percent to 1,078.65 at 5 p.m. in New York, the highest closing level since June 2010. The gauge added as much as 1.2 percent, the most since June 19, 2013.

The U.S. currency gained 1.2 percent to $1.2516 per euro and reached $1.2501, the strongest since August 2012. The dollar rose 1.2 percent to 109.76 yen after touching 110.09 on Oct. 1, the strongest level since 2008. It fell 1.1 percent during the previous two sessions. The yen traded at 137.36 against the 18-member common currency.

Futures bets by large speculators for the dollar to rise against the yen outnumbered bets for it to fall -- called net longs -- by 120,878 contracts as of Sept. 30, according to data from the Washington-based Commodity Futures Trading Commission. That’s the biggest net-long position since January.

Pound Drops

Sterling dropped 1.1 percent to $1.5973 and touched $1.5952, dipping below $1.60 for the first time since Nov. 14, as a decline in Markit Economics’s Purchasing Managers’ Index of services added to signs U.K. growth is losing momentum.

“The pound is being sold today, suggesting the longer-term dollar bull trend is slowly returning,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London “Pound-dollar was sold after the U.K. PMI data.”

Asian currencies fell for a fifth week, the longest losing streak in 18 months, as the prospect of higher U.S. interest rates sapped demand for emerging-market assets at a time when China’s economy is sputtering.

The Bloomberg-JPMorgan Asia Dollar Index declined 0.6 percent this week and today sank to its lowest level since March. South Korea’s won led losses in the region with a 1.7 percent slide versus the greenback, while Indonesia’s rupiah dropped 1.1 percent.

Canada’s dollar fell with fellow commodities currencies the Aussie and New Zealand’s kiwi, dropping 0.8 percent to C$1.1244 and touching a six-month low.

Jobs Data

The dollar strengthened today as the unemployment rate, which is derived from a Labor Department survey of households, dropped to the lowest since July 2008 after being projected in a Bloomberg survey to hold at 6.1 percent.

The increase in payrolls followed a 180,000 August gain that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.

The data also showed that average hourly earnings were stagnant in September from a month earlier, while the participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, the lowest since February 1978, from 62.8 percent a month before.

Diverging Policies

The greenback gained 7.7 percent over the past three months against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the biggest winner, as central-bank policies diverged. The euro dropped 1.9 percent and the yen declined 0.5 percent.

The Fed is considering when to raise its benchmark interest-rate target for the first time since 2006 amid signs the U.S. economy is recovering. The target has been maintained in a range of zero to 0.25 percent since 2008 to support the economy.

Officials at the Fed’s meeting last month forecast the target would be 1.375 percent at the end of 2015. Policy makers said at their meeting in July they might increase rates sooner than anticipated if labor-market gains quicken, according to minutes released Aug. 20.

‘Making Progress’

“The Fed has to feel we’re making progress and it’s time for them to consider tightening,” said Richard Schlanger, who helps invest $30 billion in fixed-income securities as vice president at Pioneer Investments in Boston. He said he expects that will happen sometime in late first quarter or early second next year.

The Fed also is on track to end this month a bond-purchase program designed to push down long-term borrowing costs and spur growth. Policy makers meet next on policy Oct. 29.

The European Central Bank and the Bank of Japan are using monetary stimulus to try to stave off deflation as their economies slump.

“Labor is tightening -- we’re seeing a significant gap higher in the dollar,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York.

“We still like to be long dollar versus euro,” Galy said, referring to bets the greenback will gain in value versus the shared currency, “and we’re still bearish on commodities currencies.”

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