Toronto, London: The dollar climbed versus the yen for an eighth day, its longest run of gains since July 2014, amid speculation that employment data Friday will boost the probability of the Federal Reserve tightening monetary policy this year.
The US currency rose against all Group-of-10 peers after a report on Thursday showed initial claims for unemployment insurance last week fell to almost the lowest level since 1973. Data released on Wednesday revealed US service companies expanded in September at the fastest rate in almost a year.
Signs of improvement in the world’s largest economy, coupled with comments from Fed officials that a rate increase is increasingly likely this year, helped pare the dollar’s loss against its major counterparts this year to about 3 per cent. The central bank may find the scope for additional tightening in its quest to normalise monetary policy and rekindle policy divergence for stimulative policies in Europe and Japan as a driver of demand for the US currency.
“The greenback has been benefiting from less pessimism, rather than outright optimism, at this point and another strong payrolls result boosts the case for a hike in the coming months,” said Bipan Rai, a senior foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce in Toronto. Rai expects the a payrolls gain potentially beyond 200,000, which would be “constructive” the dollar.
The dollar rose 0.4 per cent to 103.90 yen at 10:08am in New York, and reached the highest level since Sept. 5. The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, added 0.3 per cent.
Fed Bank of Chicago President Charles Evans flagged Wednesday that one rate increase by year-end is likely if data continue to improve, while Richmond Fed Bank President Jeffrey Lacker said he saw a case for raising rates.
The market-implied probability of a hike by December rose to 63 per cent from 51 per cent at the start of last week. The odds for action in November have climbed to 26 per cent from 17 per cent in the same period, fed fund futures data compiled by Bloomberg show. The calculation is based on the assumption the Fed’s target trades at the middle of the new band after the central bank’s next boost.
US employers added 172,000 jobs in September, according to estimates in a Bloomberg survey, an increase from a three-month low reached in August.
Economic data this week “are giving the market an indication that tomorrow’s payroll report has some scope to surprise to the upside,” said Manuel Oliveri, a currency strategist at Credit Agricole SA in London. “If you have indicators that the labour market continues to improve, it’s something that may actually put the Fed closer to tightening monetary policy in December. That’s the main reason why the dollar is very much in demand for now.”
