The US dollar is back on the upswing.
The US currency snapped a three-week loss on speculation the US Federal Reserve is inching closer to raising interest rates as the economy improves. A gauge of the greenback surged after jobless claims dropped to an almost 15-year low, boosting confidence that the Fed will increase borrowing costs this year for the first time since 2006.
“We remain pretty optimistic on the dollar,” ABN Amro Bank NV currency strategist Georgette Boele said by telephone from Amsterdam on Friday. “The strength of the economy is still there. I think people had a bit of doubt, because of the weaker numbers recently, and now they’ve started to change their views.”
Photo: Reuters
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 1.8 percent this week to 1,204.23 in New York. The greenback rallied 3.3 percent to US$1.0604 per euro, near a 12-year high, and added 1.1 percent to ¥120.22.
The US currency has gained 7 percent this year, the best performer after the Swiss franc, among a basket of 10 developed-nation currencies, according to Bloomberg Correlation-Weighted Indexes.
Net bullish bets for the dollar to strengthen against the euro by hedge funds and money managers remained at almost a record, according to Commodity Futures Trading Commission data. Futures positions betting on a stronger greenback versus the shared currency were at 215,258 contracts as of Wednesday, down from the record 226,560 reached the week before.
Fewer Americans applied for unemployment benefits during the past four weeks than at any time in almost 15 years, signaling underlying strength in the labor market.
“The improving jobless-claims data helped to ease concerns about what’s happening in the American economy,” Toronto-based Cambridge Global Payments director of foreign exchange research and strategy Karl Schamotta said by telephone on Friday. “Rate hikes are still on the menu.”
Fed Bank of Richmond President Jeffrey Lacker said he continues to favor a first interest rate increase in June because recent soft readings on the economy will probably prove temporary.
The US currency has gained for the past nine months, spurred by a recovering US labor market and signs that the Fed is getting closer to tightening monetary policy. That contrasts with central bank peers in Japan and Europe, where unprecedented stimulus has debased currencies.
The Federal Open Market Committee was split at its meeting last month on when to begin raising rates from near zero. Several participants wanted to normalize policy starting in June, while others favored later in the year, according to minutes of the March 17-18 gathering released on Wednesday.
Federal fund futures show a 58 percent probability the central bank will raise borrowing costs from virtually zero at the December last year gathering, according to data compiled by Bloomberg. That is down from 78 percent before the Fed meeting.
US retail sales rose 1 percent last month, according to a survey of analysts and economists before the data are released on Tuesday. Retailers were hurt in February, as bitter cold swept over parts of the US, discouraging consumer purchases.
“Next week, the market will continue to focus on US indicators, which are likely to confirm that growth is picking up,” and will support the dollar’s upward trend, Natixis SA Paris-based strategist Nordine Naam said in a note.
The British pound slipped to an almost five-year low against the dollar, as the UK election campaign entered its final month, with investors bracing for a contest that is set to be the tightest in a generation.
Sterling posted its worst weekly performance in a month versus the US currency and volatility surged to a five-year high as polls showed the May 7 vote is unlikely to produce a clear winner. The pound also dropped as the Bank of England voted to keep interest rates at a record-low 0.5 percent for a 73rd month. UK government bonds were little changed.
“One of the things we have been flagging is that the options market for quite some time has been pricing in a lot of uncertainty around the upcoming election,” BNP Paribas SA London-based foreign exchange strategist Michael Sneyd said. “It still looks like there is plenty of scope for investors to sell sterling ahead of the election.”
The pound fell 1.8 percent this week to US$1.4648 at 5pm London time on Friday, when it touched US$1.4587, the lowest since June 2010. The UK currency strengthened 1.6 percent to £0.7235 per euro.
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