Neither a below-forecast jobs report nor the complexities of the US presidential election will be enough to halt the US dollar from extending gains beyond a two-month high, according to Deutsche Bank AG, the world’s fourth-biggest currency trader.
The greenback on Friday closed near the strongest level since July as the US Federal Reserve remains on track to raise interest rates by the end of the year even after data showed the US economy added 156,000 jobs last month, less than the median forecast of 172,000 in a Bloomberg survey of economists. Hedge funds’ net positions that profit from a stronger greenback reached the highest level since February.
“The dollar will get reasonable support into that period of time between the elections and the Fed tightening,” said Alan Ruskin, global co-head of foreign-exchange research in New York at Deutsche Bank. “It will be hard to shift the market expectations in terms of a Fed rate hike in December.”
The US currency would strengthen to US$1.05 against the euro by the end of the year from US$1.1201 on Friday, according to Deutsche Bank’s forecasts.
The US dollar has been on the rise since the middle of August as signals of faster economic growth and accelerating inflation fueled bets for US monetary tightening at a time when most other major central banks remain stimulative.
While the presidential election is a risk factor for the greenback, some investors, including the world’s top currency forecaster Julius Bauer Ltd, see dollar strength irrespective of who prevails in next month’s vote.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, gained 1 percent this week and reached the strongest level since July 27.
The greenback gained 1.6 percent to ￥102.98.
Hedge funds raised net bullish futures positions on the US dollar versus eight major currencies in the week through Tuesday last week, according to the Commodity Futures Trading Commission.
US Treasury Secretary Jacob Lew said it is too soon to comment on the British pound’s decline, adding that global currencies have remained generally stable.
He spoke to reporters on Friday after the sterling plunged as much as 6.1 percent in early trading, as investors speculated human error led to the decline.
While the currency pared some of its losses during the day, it still posted its worst weekly decline since the British voted to abandon the EU in June.
In Taipei, the greenback rose against the New Taiwan dollar on Friday, gaining NT$0.077 to close at NT$31.480 after a relatively quiet session ahead of the release of key employment data in the US, dealers said.
The US currency ended last week at NT$31.366.
Concerns over a potential interest rate hike by the US Federal Reserve and foreign institutional selling in the local stock market put downward pressure on the NT dollar and lifted the US dollar to its highest level since Sept. 14, when it closed at NT$31.689.
The greenback opened at NT$31.420 and moved to the day’s high of NT$31.485 before settling at NT$31.480. Turnover totaled US$742 million during the trading session.
The US dollar extended gains from the earlier session and momentum continued amid worries over the Fed’s next move after it left its key interest rates unchanged at its policy meeting last month, the dealers said.
Several Fed officials have stressed the need for higher interest rates since then and currency traders are waiting the US jobs data to get a read on where the Fed’s monetary policy might go next, they said.
That left many traders cautious on Friday and although the US dollar moved higher against the NT dollar, trading remained slow, they added.
The US dollar received a boost from foreign institutional selling in the local stock market, which sparked concerns that foreign investors might be preparing to move funds out of the region as they bet on a higher greenback, the dealers said.
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