Dollar Advances Against Euro as Focus Shifts to Fed, Brexit Risk

  • Greenback recovers after selloff triggered by May jobs report
  • Currency volatility up for second week, JPMorgan gauge shows

The dollar posted a weekly gain against the euro as traders weighed upcoming risks, including next week’s Federal Reserve meeting and the potential for a U.K. exit from the European Union.

The U.S. currency rose for the fifth time in the past six weeks against the common currency. A JPMorgan Chase & Co. measure of global foreign-exchange volatility surged this week after Fed Chair Janet Yellen called the latest employment report "disappointing," while polls before the June 23 British vote whipsawed the pound. The yen rallied on haven demand after a poll showed the campaign for Britain to leave the EU took a 10 percentage-point lead.

“The dollar has room to move higher,” said Ugo Lancioni, London-based head of currency management at Neuberger Berman Group LLC, citing U.S. monetary policy divergence from its biggest peers in Europe, Japan, and commodity-exporting nations. The company, which manages $243 billion, expects the currency’s recent weakness to subside and has added some bullish short-term positions.

The greenback recouped some of its losses this week after slumping on June 3 when a lackluster jobs report weakened the case for the Fed to boost borrowing costs. It rallied in May as policy makers including Yellen said higher rates in the coming months looked appropriate.

The U.S. currency climbed 0.6 percent against the euro to $1.1251 as of 5 p.m. New York time and added 1 percent this week. The yen rose 0.1 percent to 106.97 per dollar.

The JPMorgan gauge of foreign-exchange price swings has climbed 10 percent this week, the most since February.

Hedge funds and other money managers increased net bullish bets on the dollar for the third week to 145,247 positions as of June 7, according to data from the Commodity Futures Trading Commission. That’s up from 84,149 the week earlier.

While traders see a zero percent chance the Fed will raise rates at its June 15 meeting, there’s a 49 percent probability the central bank will hike by year-end, futures data show. The Federal Open Market Committee will end the two-day meeting with a policy statement, revised economic projections and a news conference.

“The foreign-exchange markets have overreacted to the latest Fed cautiousness,” said Valentin Marinov, head of Group-of-10 foreign-exchange strategy at Credit Agricole SA in London. “The misvaluation should diminish before long with the U.S. dollar recovering,” particularly against the currencies of raw-material exporters including Canada, Norway and Australia.

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