Dollar Gains Most in Two Months Against Yen Amid Jobs Optimism

The dollar climbed the most in two months versus the yen as robust employment gains fueled speculation the Federal Reserve will increase U.S. interest rates while its global counterparts add to monetary stimulus.

While policy makers in Europe and Japan buy bonds to stimulate growth and inflation, futures prices show increased chances Fed will boost borrowing costs as early as June, adding to the allure of the U.S. currency. The greenback advanced against the yen by the most in nine weeks as U.S. jobs gains in January capped the biggest three-month gain in 17 years.

“The dollar strength will simply amplify by mid-year,” bolstered by a stronger economy, diverging central-bank policies and inflationary pressures, said Jennifer Vail, head of fixed-income research at U.S. Bank Wealth Management, which manages $122 billion in assets.

The U.S. currency strengthened 1.4 percent to 119.12 yen this week in New York. It was little changed versus the euro at $1.1316.

Hedge funds and other large speculators increased net positions that profit from a gain in the dollar against euro to the most since June 2012, according to data as of Feb. 3 from the Commodity Futures Trading Commission.

Fed Watch

Federal fund futures give a 27 percent chance the central bank will lift rates at its policy meeting in June, according to data compiled by Bloomberg. That’s up from 18 percent Thursday. The central bank has held rates at virtually zero since December 2008 to support the economy.

“It puts the Fed rates in contrast with the expectations of the European Central Bank, the banks of Japan and China that are trying to stimulate growth and fight against deflation,” Alfonso Esparza, senior currency analyst at Oanda Corp., said by phone from Toronto. “It’s a very clear case of rate divergence.”

U.S. employers hired 257,000 workers in January, exceeding estimates in Bloomberg News survey of economists. The increase in December was also revised higher.

The euro slid for a seventh month in January after the European Central Bank announced a 1.1 trillion-euro ($1.3 trillion) stimulus plan. The Bank of Japan buys as much as 12 trillion yen ($100 billion) a month.

Yield Difference

The Treasury 10-year note yields almost 1 percentage point more than the average of similar-maturity debt issued by Group of Seven peers, the most since the start of the year, according to data compiled by Bloomberg.

“The divergence between the strength of the euro zone economy and the U.S. economy is going to push the euro down more,” U.S. Bank’s Vail said.

The euro will probably stay in the $1.10 to $1.15 range while Greece and the ECB negotiate the nation’s debt arrangements, Douglas Borthwick, the head of foreign exchange at New York brokerage Chapdelaine & Co., said by phone. Newly elected Greek officials are seeking relief from anti-austerity policies, while European officials led by Germany work to maintain financial discipline.

“That’s where we’re going to be until we see what’s going to happen between the Greece versus ECB showdown,” Borthwick said. “There has to be a meeting at the O.K. Corral between the two, and once that meeting’s gone through, then you’ll see further movement away from this range.”

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