Dollar Reaches 4-Month High as Jobs Data Give Fed Room to Move

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The dollar reached a four-month high as continued growth in the U.S. labor market supported moves toward higher interest rates.

The U.S. currency posted a weekly gain as a report showed another month of 200,000-plus jobs gains and the unemployment rate remained at a seven-year low. Traders increased the likelihood of the Federal Reserve boosting borrowing costs next month.

“Today’s print keeps September firmly on the table and should continue to support the U.S. dollar,” said Matt Derr, a foreign-exchange strategist at Credit Suisse Group AG in New York. “However, we still have some time and a number of other data prints before the September Federal Open Market Committee that we will need to get through.”

The Bloomberg Dollar Spot Index gained 0.3 percent this week to 1,212.07 as of 5 p.m. in New York, and reached the highest level on a closing basis since March 13. The greenback dropped 0.4 percent Friday to $1.0967 per euro and lost 0.4 percent to 124.24 yen.

Speculation that an interest-rate rise is drawing nearer propelled to U.S. currency to its sixth weekly gain in the past seven weeks. The dollar was second-best performer after the pound among 10 developed-nation peers in the past three months trailing only the pound, according to Bloomberg Correlation-Weighted Currency Indices.

Futures Positions

Hedge funds and other money managers boosted net bullish bets on the dollar for a seventh week, the longest rising streak since March 2013, according to data from the Commodity Futures Trading Commission.

The greenback is “positioned to gain against all the majors,” Alfonso Esparza, a senior currency analyst at Oanda Corp. in Toronto, said by phone. “With these numbers, we will start to see more of an advance because everyone is counting this as a validator for September. The next milestone becomes retail sales.” The report is scheduled for Aug. 13.

Traders are pricing in a 54 percent probability that the Fed will raise interest rates in September, based on the assumption that the effective fed funds rate will average 0.375 percent after the first increase. That compares with 50 percent Thursday.

“There’s an upward bias towards dollar strength,” Michael Materasso, co-chairman of the fixed-income policy committee at Franklin Templeton Investments in New York, said by phone. “If the U.S. economy performs better than expected, as we think it could, I think that may give it an additional boost.”

Labor Department data showed American employers added 215,000 workers in July. Economists had forecast a 225,000 increase, according to the median estimate in a Bloomberg survey. Payroll gains averaged 235,000 during the past three months, the strongest since December through February.

Last month Fed Chair Janet Yellen said she expected the central bank to raise its benchmark rate this year, while emphasizing the pace of tightening will probably be gradual.

The dollar is “pushing higher, but at much more modest levels than we saw in the past,” Jennifer Vail, head of fixed-income research in Portland, Oregon, at U.S. Bank Wealth Management, said by phone. “That’s what we expect to see,” said Vail, whose company manages $126 billion.