Dollar on Best Winning Streak Since March on Fed Rate-Hike Bets

Updated on
  • Strong data will be key to keeping rally on track, TD says
  • Fed’s Fischer says U.S. isn’t planning negative interest rates

Fischer: Dollar Not Most Fundamental Productivity Factor

The dollar advanced for a fifth day against the yen, its longest winning streak since March, on mounting speculation the Federal Reserve will raise interest rates this year.

The U.S. currency rose against most of its major peers as the likelihood of an increase in borrowing costs this year jumped to 59 percent in the futures market, up from 36 percent at the start of of the month. The prospect of a boost next month has doubled to 36 percent before the Sept. 2 report on August employment conditions.

“The dollar looks pretty bid across the board,” said Kamal Sharma, a London-based foreign-exchange strategist at Bank of America Corp., in an interview on Bloomberg Television. “Having said that, we’ve got enough event risk in September with the likes of the European Central Bank, the Bank of Japan and also not forgetting this week’s nonfarm payrolls number.”

Investors’ sentiment on the dollar has oscillated in recent weeks on speculation about the Fed’s tightening path after it raised rates in December for the first time since 2006. The greenback has trimmed its loss this year to 3.9 percent on indications The trend in employment and inflation gives the central bank scope to remove monetary stimulus.

The dollar gained 1 percent to 102.96 yen as of 5 p.m. in New York and advanced 0.4 percent to $1.1143 to the euro, its strongest level in almost three weeks. The Bloomberg Dollar Spot Index, which tracks the greenback against its 10 major peers, rose 0.6 percent, advancing for the seventh time in eight days.

Fed Watch

The gains follow a string of comments about tightening from policy makers, with Fed Chair Janet Yellen telling the Jackson Hole conference last week that the case for higher borrowing costs has strengthened. Vice Chairman Stanley Fischer said on Bloomberg Television Tuesday reiterated that central-bank rate increases will be data-dependent without giving a specific timeline.

The dollar was also supported against the yen as the Fed officials’ comments contrasted with those from their counterparts at the BOJ, raising the prospect of a greater divergence in the nations’ monetary policies. BOJ Governor Haruhiko Kuroda reiterated on Aug. 27, also at Jackson Hole, his readiness to ease monetary policy further.

U.S. employers added 180,000 jobs in August, according to economists surveyed by Bloomberg before the Labor Department report on Sept. 2. That’s down from a 255,000 increase in July. The U.S. employment report will have to show a strong result to keep the dollar’s rally on track, according to Toronto-Dominion Bank.

“The dollar is likely to stay on a firm footing into the Friday payrolls report, but we’ll need to see a solid set of numbers for gains to be sustained beyond that,” said Ned Rumpeltin, the European head of currency strategy at TD in London.