Friday, 5 July 2013

Dollar Index Climbs to 3-Year High After Jobs Gains; Pound Drops

By Joseph Ciolli & Jeff Marshall - Jul 5, 2013 10:05 PM GMT+0400
The Dollar Index climbed to the highest level since 2010 after U.S. employers added more jobs than forecast in June, fueling bets the Federal Reserve will begin slowing unprecedented monetary stimulus.
The dollar gauge, which IntercontinentalExchange Inc. uses to track the greenback versus currencies of six major U.S. trade partners, has gained 4.7 percent since June 18. The pound dropped to an almost four-month low against the dollar on wagers the Bank of England is ready to do more to aid the U.K. recovery. Norway’s krone fell to the weakest in almost three years after manufacturing production dropped more than forecast.
July 5 (Bloomberg) -- U.S. payrolls rose in June by 195,000 workers, more than forecast, for a second straight month, the Labor Department reported today in Washington. The jobless rate stayed at 7.6 percent, while hourly earnings in the year ended in June advanced by the most since July 2011. Megan Hughes and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)
“These are really strong numbers, and there was an expected strong-dollar response across the board,” Dan Dorrow, head of research at Faros Trading LLC in StamfordConnecticut, said of the U.S. data in a telephone interview. “This suggests tapering sooner rather than later because the cumulative strong momentum is there.”
The Dollar Index advanced 1.4 percent to 84.416 at 2:01 p.m. inNew York. It jumped as much as 1.6 percent, the biggest intraday gain since November 2011, to 84.530. It was the highest level since July 13, 2010. The gauge has risen 1.5 percent over the past five days in its third weekly increase, the longest winning stretch since March.
The dollar appreciated 0.6 percent to $1.2833 per euro and touched $1.2806, its strongest level since May 17. The greenback rose 1 percent to 101.06 yen after reaching 101.14, the highest since May 31. The Japanese currency declined 0.4 percent to 129.68 per euro.

ECB, England

The 17-nation currency fell yesterday versus the greenback as European Central Bank President Mario Draghi pledged to keep rates at a record-low 0.5 percent for an extended period.
Sterling weakened for a second day versus the euro after the Bank of England, led by newly installed Governor Mark Carney, signaled yesterday policy makers will keep rates at a record low for longer than investors had anticipated.
“Carney caught the market unawares, he was attempting to ensure that market expectations remain more focused on the U.K. economy than on the U.S.,” said Jane Foley, a senior currency strategist at Rabobank International in London. “He wanted to draw attention to the fact that the recovery is very nascent, very fragile. That leaves the pound weaker.”
The U.K. currency slid 1.1 percent to $1.4909 and reached $1.4858, the lowest level since March 12. The pound lost 0.5 percent to 86.08 pence per euro after touching 86.33 yesterday, the weakest since April 17.
There’s “a stronger dollar ahead, but not U.S.-growth friendly,” as the ECB and BOE ease while Fed tapering looms, Bill Gross, manager of the world’s biggest fixed-income fund at Pacific Investment Management Co., wrote in a Twitter post.

Krone Slides

The krone dropped for the first time in three days against the dollar after Statistics Norway said the nation’s manufacturing production declined 2.1 percent in May from the previous month, when it gained a revised 2.9 percent.
The Norwegian currency tumbled 2.3 percent to 6.2505 against the dollar and touched 6.2654, the weakest since September 2010. It slid 1.7 percent to 8.0219 per euro.
The dollar has strengthened 8.1 percent this year, the best performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has tumbled 8.8 percent, while the euro has advanced 4.8 percent.

Options Trading

Trading in over-the-counter foreign-exchange options totaled $24 billion, compared with $18 billion yesterday and $33 billion on July 3, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yenexchange rate amounted to $5 billion, the largest share of trades at 21.5 percent. Euro-dollar options totaled $4.8 billion, or 20.6 percent.
U.S. financial markets were closed yesterday for the Independence Day holiday.
Dollar-yen options trading was 36 percent below the average for the past five Fridays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 82 percent above average.
U.S. payrolls rose by 195,000 workers for a second straight month, the Labor Department reported today in Washington. The median forecast in a Bloomberg survey projected a 165,000 gain after a previously reported 175,000 increase in May. The jobless rate stayed at 7.6 percent, almost a four-year low.

Fed Purchases

The Fed is buying $85 billion of Treasuries and mortgage bonds each month to put downward pressure on borrowing costs in the third round of its quantitative-easing stimulus program. The Fed purchased $2.3 trillion of assets from 2008 to 2011 in the first two rounds. The purchases tend to debase the currency.
Fed Chairman Ben S. Bernanke said June 19 after a Federal Open Market Committee meeting the central bank may reduce the purchases this year and end them in mid-2014 if growth meets policy makers’ projections. Fed officials forecast expansion of as much as 2.6 percent this year and 3.5 percent in 2014. A plurality of economists in a June 19-20 Bloomberg survey said the central bank will slow purchases at its Sept. 17-18 meeting.
Policy makers have also kept the key interest-rate target at zero to 0.25 percent since 2008 to support the economy.
The probability of a rate increase of at least a quarter-percentage point by the Fed’s December 2014 meeting rose to 56 percent, from 39 percent on June 5, according to fed-funds futures data compiled by Bloomberg.
Bernanke said June 19 that a rate increase is “far in the future.” Fifteen of 19 policy makers expect no increase in the federal funds rate before 2015, the Fed’s June forecasts show.
The Fed has said it will keep the rate at almost zero as long as unemployment remains above 6.5 percent and the outlook for inflation doesn’t exceed 2.5 percent.
To contact the reporters on this story: Joseph Ciolli in New York at; Jeff Marshall in New York at
To contact the editor responsible for this story: Dave Liedtka at