If employment forecasts are any indication, the US dollar is about to have another good week.
A gauge of the greenback rose the most in two months after US Federal Reserve Chair Janet Yellen clarified that she was one of the policymakers who believe an interest-rate rise would likely be appropriate this year.
The prospect of higher US rates raises the appeal of US dollar-
denominated holdings. The US jobs report, scheduled for release on Friday, is projected to add to the central bank’s case for reducing monetary stimulus.
“Faster hiring would pull a Fed rate hike into sharper focus and have the dollar poised for outperformance,” said Joe Manimbo, an analyst with Western Union Business Solutions, a unit of Western Union Co. in Washington. “When you say next week, I get an image of Donald Trump saying: ‘Huge! Huge! Huge!’”
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 1 percent this week in New York, the most since the five days through July 17. The US currency added 0.9 percent against the euro and 0.4 percent versus the yen.
The Norwegian krone, which tumbled after the country’s central bank reduced its main interest rate, posted the biggest loss against the dollar this week.
The US Department of Labor report is expected to show that employers added 202,000 jobs last month, according to the median forecast of 73 economists surveyed by Bloomberg. Monthly gains have averaged 212,000 this year as the unemployment rate fell to 5.1 percent, the lowest level since April 2008.
In her remarks on Thursday in Amherst, Massachusetts, Yellen said “the economy is no longer far away from full employment” and that the Federal Open Market Committee believes “that inflation will gradually return to 2 percent over the next two or three years.”
On average, the Bloomberg Dollar Spot Index rose 0.3 percent one hour after the release of the past 12 employment reports, according to data compiled by Bloomberg.
“We’ll see another 200,000-plus gain, I have no reason to doubt that, and we’re obviously coming off a very strong second-quarter growth gain,” said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. “The dollar’s prospects will be solid.”
Traders are pricing in a 18 percent probability of the US central bank raising the benchmark rate at its meeting next month and a 43 percent likelihood by the December meeting, according to data compiled by Bloomberg.
That is based on the assumption that the effective fed funds rate would average 0.375 percent after the first increase from the zero to 0.25 percent target range the Fed has held since December 2008.
The US dollar has added 9.1 percent this year, the second-best performer behind the Swiss franc among 10 developed-nation counterparts, according to Bloomberg Correlation-Weight Indexes. The yen has gained 8.3 percent, while the euro is little changed.
Meanwhile, the pound strengthened for the first time in four days against the euro on Friday after Yellen said the Fed was on course to raise interest rates this year, boosting speculation the Bank of England would follow.
The pound strengthened 0.3 percent to ￡0.7344 per euro at 1:21pm on Friday in London. It dropped 2.1 percent over the previous three days and depreciated to ￡0.7411 on Thursday, the weakest level since Aug. 24. Sterling fell for a sixth day versus the US dollar, slipping 0.4 percent to US$1.5176.
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