The dollar climbed to a four-year high as the U.S. employment rate fell to the lowest since 2008 and the economy added more jobs than forecast, bolstering the case for the Federal Reserve to raise interest rates next year. The Bloomberg Dollar Spot Index headed for a seventh week of gains, the longest streak since June 2010, after Labor Department figures showed the unemployment rate dropped to 5.9 percent and employers added 248,000 workers. The pound dropped below $1.60 for the first time in almost a year and the euro threatened to breach $1.25 for the time in two years. The dollars of New Zealand and Australia plunged at least 1.6 percent.
“The whole flavor of the report is very positive -- frankly I’m surprised dollar hasn’t rallied more,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “The doves will be really clutching at straws to find something they don’t like” in the report.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 1.1 percent to 1,079.18 at 12:39 p.m. in New York, after gaining 1.2 percent, most since June 19, 2013. The gauge touched 1,080.05, the highest closing level since June 2010.
The U.S. currency gained 1.3 percent to $1.2508 per euro and reached $1.2501, the strongest since August 2012. The dollar rose 1.3 percent to 109.85 yen after touching 110.09 on Oct. 1, the strongest level since 2008. It fell 1.1 percent during the past two sessions. The yen traded at 137.40 against the 18-member common currency.
Pound Drops
Sterling dropped 1.2 percent to $1.5958, and touched $1.5952, dipping below $1.60 for the first time since Nov. 14, as a decline in Markit Economics’s Purchasing Managers’ Index of services added to signs U.K. growth is losing momentum. “The pound is being sold today, suggesting the longer-term dollar bull trend is slowly returning,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London “Pound-dollar was sold after the U.K. PMI data.”
Asian currencies fell for a fifth week, the longest losing streak in 18 months, as the prospect of higher U.S. interest rates sapped demand for emerging-market assets at a time when China’s economy is sputtering. The Bloomberg-JPMorgan Asia Dollar Index declined 0.6 percent this week and today sank to its lowest level since March. South Korea’s won led losses in the region with a 1.7 percent slide versus the greenback, while Indonesia’s rupiah dropped 1.1 percent.
Canada’s dollar fell with fellow commodities currencies the Aussie and New Zealand’s kiwi, dropping 1 percent to C$1.1271 and touching a six-month low.
Jobs Data
The dollar strengthened today as the unemployment rate, which is derived from a Labor Department survey of households, dropped to the lowest since July 2008 after being projected in a Bloomberg survey to hold at 6.1 percent. The increase in payrolls followed a 180,000 August gain that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.
The report also showed that average hourly earnings were stagnant in September from a month earlier, while the participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, the lowest since February 1978, from 62.8 percent a month before.
Diverging Policies
The greenback gained 7.8 percent over the past three months against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the biggest winner, as central-bank policies diverged. The euro dropped 1.9 percent and the yen declined 0.5 percent.
The Fed is considering when to raise its benchmark interest-rate target for the first time since 2006 amid signs the U.S. economy is recovering. The target has been maintained in a range of zero to 0.25 percent since 2008 to support the economy. Officials at the Fed’s meeting last month forecast the target would be 1.375 percent at the end of 2015. Policy makers said at their meeting in July they might increase rates sooner than anticipated if labor-market gains quicken, according to minutes released Aug. 20.
‘Making Progress’
“The Fed has to feel we’re making progress and it’s time for them to consider tightening,” said Richard Schlanger, who helps invest $30 billion in fixed-income securities as vice president at Pioneer Investments in Boston. He said he expects that will happen sometime in late first quarter or early second next year.
The Fed also is on track to end this month a bond-purchase program designed to push down long-term borrowing costs and spur growth. Policy makers meet next on policy Oct. 29.
The European Central Bank and the Bank of Japan are using monetary stimulus to try to stave off deflation as their economies slump. “Labor is tightening -- we’re seeing a significant gap higher in the dollar,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York. “We still like to be long dollar versus euro,” Galy said, referring to bets the greenback will gain in value versus the shared currency, “and we’re still bearish on commodities currencies.”
Canadian Dollar Falls to Six-Month Low on Trade Deficit
The Canadian dollar fell to its lowest point in six months against the U.S. dollar after the nation posted an unexpected trade deficit in August, bolstering the Bank of Canada’s cautious outlook on the economy.
The currency rose against most of its other major peers, including the Australian and New Zealand dollars, after data showed the jobless rate in the U.S., Canada’s largest trading partner, fell to a six-year low in September. The Bank of Canada has held its benchmark interest rate at 1 percent for four years and maintained last month it is as likely to lower borrowing costs as raise them while it waits for signs of a sustained export recovery that can power economic growth.
“It does suggest the improvement we’d seen in the trade sector is waning a little bit,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “The bank appears to be somewhat justified in its cautious outlook for the Canadian economy and will probably continue to talk cautiously going forward.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell as low as C$1.1248 per U.S. dollar, the least since March 21, before trading down 0.8 percent at C$1.1244 as of 10:05 a.m. in Toronto. One loonie buys 88.93 U.S. cents. Canada’s C$610 million ($543 million) deficit followed a July surplus that was pared to C$2.20 billion from the initial C$2.58 billion estimate. None of the 14 economists in a Bloomberg survey predicted that Ottawa-based Statistics Canada would report a trade deficit today, and the median estimate was for a C$1.6 billion surplus.
Other data today showed the U.S. jobless rate fell to 5.9 percent in September as payrolls grew by 248,000 positions following a 180,000 August increase that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance. The unemployment rate fell to the lowest level since July 2008 from 6.1 percent.
Sterling Succumbs to Dollar Strength Dropping Below $1.60
The pound tumbled below $1.60 for the first time since November, sapped by signs growth in the U.K. is losing momentum as the U.S. economy gathers strength. An eight-day run of losses, the longest stretch since July, has hauled the British currency down 2.6 percent versus its American counterpart. It’s now more than 7 percent below this year’s high of $1.7192, a rate set in July that was the strongest level since 2008.
Fueling the declines today were reports showing growth in U.K. services is decelerating at a faster pace than economists estimated, while a surge in hiring across the Atlantic sent unemployment to a six-year low. The data added to evidence that the U.S. may be better able to withstand an increase in interest rates earlier than Britain.
“The dollar is performing well across the board after the nonfarm payrolls data and pound-dollar is lower as a consequence,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Data divergence is behind the pound-dollar move. The market will be revising interest-rate increases. Some expectation may result in forecasts for a Federal Reserve rate hike prior to a Bank of England hike.”
The pound declined 1.1 percent to $1.5965 at 4:15 p.m. London time, the biggest drop since Sept. 8. It touched $1.5952, the weakest level since November. The U.K. currency strengthened 0.1 percent to 78.38 pence per euro.
Rates Expectations
Traders have been pushing back bets on when the Bank of England will raise borrowing costs from a record low at the same time as speculation mounts that the Fed is moving closer to an increase in interest rates. Foreign-exchange dealers tend to favor currencies of countries where interest rates are rising as deposits or investments will earn a higher return.
In the U.K., forward contracts based on the sterling overnight interbank average, or Sonia, show investors are speculating the Bank of England won’t raise rates by 25 basis points until June. As recently as August they were betting on February. Traders see a 77 percent chance the Fed will raise rates by September, up from a 69 percent chance three months ago.
While sterling is falling against the dollar, it set a two-year high against the euro this week on relatively weaker growth in the 18 nations that share the currency. The pound rounded out a sixth-straight month of gains through Sept. 30. Markit Economics’s Purchasing Managers’ Index for U.K. services fell to 58.7 from a 10-month high of 60.5 in August, today’s report showed. Economists had forecast a decline to 59, based on the median estimate in a Bloomberg News survey. Markit said the gauge, along with its factory and construction surveys, indicates the economy grew 0.8 percent in the third quarter, down from 0.9 percent in the second.
Jobs Data
U.S. employers added 248,000 jobs in September, from an upwardly revised 180,000 the previous month, the Labor Department said today. That’s more than the 215,000 median forecast of economists surveyed by Bloomberg. The unemployment rate fell to a six-year low of 5.9 percent.
Britain’s government bonds fell for the first time in five days. Gilts declined before the U.K. debt office is scheduled to sell 2.25 billion pounds in bonds due in 2045 next week. Ten-year benchmark securities were still higher on the week as funds sought to align holdings with indexes they track for the end of the month.
Supply Returns
“We’ve had some short-term factors that have aided the gilt market with light supply and index month-end events,” said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “Now we are going through a reassessment of the fact supply returns, long-end issuance next week, last week of buybacks, the issuance schedule picks up into the end of the year and that feeds through into valuations.”
The 10-year gilt yield rose seven basis points, or 0.07 percentage point, to 2.40 percent. That’s down from 2.47 percent at the end of last week. The price of the 2.75 percent bond due in September 2024 fell 0.645, or 6.45 pounds per 1,000-pound face value, today to 103.105.
The U.S. five-year yield rose above that on similar-maturity gilts this week, an additional sign investors were betting on relatively higher interest rates in America. Gilts returned 8.3 percent this year through yesterday, Bloomberg World Bond Indexes show. Treasuries gained 4.2 percent and German securities earned 7.6 percent.
Brazil’s Real Leads World Currency Gains as Runoff Election Seen
Brazil’s real led world currency gains on wagers President Dilma Rousseff won’t win re-election in a first-round vote as the nation contends with a recession and above-target inflation. The real climbed 0.7 percent to 2.4777 per U.S. dollar at 2:42 p.m. in Sao Paulo, the biggest advance among 31 major currencies tracked by Bloomberg. The real dropped earlier today to a level weaker than 2.5 per dollar for the first time since 2008 and for the week was still down 2.3 percent.
The currency’s projected swings have heightened as the weekend vote approaches, with one-month implied volatility on options for the real increasing to almost 18 percent, the highest among developing nations. Speculation that a new government would revive economic growth and curb inflation helped to push the real to a one-month high in August.
“People know Rousseff will be in the second round, but the campaign will be tough,” Deives Ribeiro, a currency manager at Fair Corretora de Cambio e Valores in Sao Paulo, said in a telephone interview.
Rousseff will garner 40 percent of support in the first round of votes on Oct. 5, followed by 24 percent for Marina Silva and 19 percent for Aecio Neves, according to an Ibope poll of 3,010 published yesterday. The leading candidate needs more than 50 percent of valid votes, or more than all other candidates combined, to win the election and avoid a second round against the runner-up Oct. 26.
Second Round
The president would beat either challenger in a second round, according to the Ibope poll Sept. 29-Oct. 1, which has a margin of error of plus or minus two percentage points. To support the currency, Brazil sold today $196.9 million of foreign-exchange swaps as part of its intervention program and rolled over contracts worth $392.8 million.
HSBC Holdings Plc projected this week in a research report to clients that the real will weaken to 2.6 per U.S. dollar “as soon as end-2014 if the sentiment of our post-election scenario of ‘no policy change’ prevails.” Standard & Poor’s lowered Brazil’s credit rating in March to one level above junk, citing a slowdown in economic growth and what it said was a deterioration in fiscal accounts. Moody’s Investors Service changed the outlook on the country’s rating from stable to negative last month.
The Treasury said this week that the central government’s primary deficit, excluding interest payments, widened in August to 10.4 billion reais while the median forecast of analysts surveyed by Bloomberg was for a balanced budget.
Swap rates, a gauge of expectations for changes in borrowing costs, dropped eight basis points, or 0.08 percentage point, to 11.95 percent today on the contract due in January 2016. They’re up 27 basis points since Sept. 26. The central bank raised the target lending rate by 3.75 percentage points in the year through April to 11 percent before holding it there for the past three meetings.
source: Bloomberg
“The whole flavor of the report is very positive -- frankly I’m surprised dollar hasn’t rallied more,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “The doves will be really clutching at straws to find something they don’t like” in the report.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 1.1 percent to 1,079.18 at 12:39 p.m. in New York, after gaining 1.2 percent, most since June 19, 2013. The gauge touched 1,080.05, the highest closing level since June 2010.
The U.S. currency gained 1.3 percent to $1.2508 per euro and reached $1.2501, the strongest since August 2012. The dollar rose 1.3 percent to 109.85 yen after touching 110.09 on Oct. 1, the strongest level since 2008. It fell 1.1 percent during the past two sessions. The yen traded at 137.40 against the 18-member common currency.
Pound Drops
Sterling dropped 1.2 percent to $1.5958, and touched $1.5952, dipping below $1.60 for the first time since Nov. 14, as a decline in Markit Economics’s Purchasing Managers’ Index of services added to signs U.K. growth is losing momentum. “The pound is being sold today, suggesting the longer-term dollar bull trend is slowly returning,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London “Pound-dollar was sold after the U.K. PMI data.”
Asian currencies fell for a fifth week, the longest losing streak in 18 months, as the prospect of higher U.S. interest rates sapped demand for emerging-market assets at a time when China’s economy is sputtering. The Bloomberg-JPMorgan Asia Dollar Index declined 0.6 percent this week and today sank to its lowest level since March. South Korea’s won led losses in the region with a 1.7 percent slide versus the greenback, while Indonesia’s rupiah dropped 1.1 percent.
Canada’s dollar fell with fellow commodities currencies the Aussie and New Zealand’s kiwi, dropping 1 percent to C$1.1271 and touching a six-month low.
Jobs Data
The dollar strengthened today as the unemployment rate, which is derived from a Labor Department survey of households, dropped to the lowest since July 2008 after being projected in a Bloomberg survey to hold at 6.1 percent. The increase in payrolls followed a 180,000 August gain that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.
The report also showed that average hourly earnings were stagnant in September from a month earlier, while the participation rate, which measures the number of Americans employed or looking for a job as a share of the working-age population, decreased to 62.7 percent, the lowest since February 1978, from 62.8 percent a month before.
Diverging Policies
The greenback gained 7.8 percent over the past three months against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the biggest winner, as central-bank policies diverged. The euro dropped 1.9 percent and the yen declined 0.5 percent.
The Fed is considering when to raise its benchmark interest-rate target for the first time since 2006 amid signs the U.S. economy is recovering. The target has been maintained in a range of zero to 0.25 percent since 2008 to support the economy. Officials at the Fed’s meeting last month forecast the target would be 1.375 percent at the end of 2015. Policy makers said at their meeting in July they might increase rates sooner than anticipated if labor-market gains quicken, according to minutes released Aug. 20.
‘Making Progress’
“The Fed has to feel we’re making progress and it’s time for them to consider tightening,” said Richard Schlanger, who helps invest $30 billion in fixed-income securities as vice president at Pioneer Investments in Boston. He said he expects that will happen sometime in late first quarter or early second next year.
The Fed also is on track to end this month a bond-purchase program designed to push down long-term borrowing costs and spur growth. Policy makers meet next on policy Oct. 29.
The European Central Bank and the Bank of Japan are using monetary stimulus to try to stave off deflation as their economies slump. “Labor is tightening -- we’re seeing a significant gap higher in the dollar,” Sebastien Galy, a senior currency strategist at Societe Generale SA in New York. “We still like to be long dollar versus euro,” Galy said, referring to bets the greenback will gain in value versus the shared currency, “and we’re still bearish on commodities currencies.”
Canadian Dollar Falls to Six-Month Low on Trade Deficit
The Canadian dollar fell to its lowest point in six months against the U.S. dollar after the nation posted an unexpected trade deficit in August, bolstering the Bank of Canada’s cautious outlook on the economy.
The currency rose against most of its other major peers, including the Australian and New Zealand dollars, after data showed the jobless rate in the U.S., Canada’s largest trading partner, fell to a six-year low in September. The Bank of Canada has held its benchmark interest rate at 1 percent for four years and maintained last month it is as likely to lower borrowing costs as raise them while it waits for signs of a sustained export recovery that can power economic growth.
“It does suggest the improvement we’d seen in the trade sector is waning a little bit,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank, said by phone from Toronto. “The bank appears to be somewhat justified in its cautious outlook for the Canadian economy and will probably continue to talk cautiously going forward.”
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, fell as low as C$1.1248 per U.S. dollar, the least since March 21, before trading down 0.8 percent at C$1.1244 as of 10:05 a.m. in Toronto. One loonie buys 88.93 U.S. cents. Canada’s C$610 million ($543 million) deficit followed a July surplus that was pared to C$2.20 billion from the initial C$2.58 billion estimate. None of the 14 economists in a Bloomberg survey predicted that Ottawa-based Statistics Canada would report a trade deficit today, and the median estimate was for a C$1.6 billion surplus.
Other data today showed the U.S. jobless rate fell to 5.9 percent in September as payrolls grew by 248,000 positions following a 180,000 August increase that was bigger than previously estimated, the Labor Department reported in Washington. The median forecast of economists in a Bloomberg survey called for a 215,000 advance. The unemployment rate fell to the lowest level since July 2008 from 6.1 percent.
Sterling Succumbs to Dollar Strength Dropping Below $1.60
The pound tumbled below $1.60 for the first time since November, sapped by signs growth in the U.K. is losing momentum as the U.S. economy gathers strength. An eight-day run of losses, the longest stretch since July, has hauled the British currency down 2.6 percent versus its American counterpart. It’s now more than 7 percent below this year’s high of $1.7192, a rate set in July that was the strongest level since 2008.
Fueling the declines today were reports showing growth in U.K. services is decelerating at a faster pace than economists estimated, while a surge in hiring across the Atlantic sent unemployment to a six-year low. The data added to evidence that the U.S. may be better able to withstand an increase in interest rates earlier than Britain.
“The dollar is performing well across the board after the nonfarm payrolls data and pound-dollar is lower as a consequence,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. in London. “Data divergence is behind the pound-dollar move. The market will be revising interest-rate increases. Some expectation may result in forecasts for a Federal Reserve rate hike prior to a Bank of England hike.”
The pound declined 1.1 percent to $1.5965 at 4:15 p.m. London time, the biggest drop since Sept. 8. It touched $1.5952, the weakest level since November. The U.K. currency strengthened 0.1 percent to 78.38 pence per euro.
Rates Expectations
Traders have been pushing back bets on when the Bank of England will raise borrowing costs from a record low at the same time as speculation mounts that the Fed is moving closer to an increase in interest rates. Foreign-exchange dealers tend to favor currencies of countries where interest rates are rising as deposits or investments will earn a higher return.
In the U.K., forward contracts based on the sterling overnight interbank average, or Sonia, show investors are speculating the Bank of England won’t raise rates by 25 basis points until June. As recently as August they were betting on February. Traders see a 77 percent chance the Fed will raise rates by September, up from a 69 percent chance three months ago.
While sterling is falling against the dollar, it set a two-year high against the euro this week on relatively weaker growth in the 18 nations that share the currency. The pound rounded out a sixth-straight month of gains through Sept. 30. Markit Economics’s Purchasing Managers’ Index for U.K. services fell to 58.7 from a 10-month high of 60.5 in August, today’s report showed. Economists had forecast a decline to 59, based on the median estimate in a Bloomberg News survey. Markit said the gauge, along with its factory and construction surveys, indicates the economy grew 0.8 percent in the third quarter, down from 0.9 percent in the second.
Jobs Data
U.S. employers added 248,000 jobs in September, from an upwardly revised 180,000 the previous month, the Labor Department said today. That’s more than the 215,000 median forecast of economists surveyed by Bloomberg. The unemployment rate fell to a six-year low of 5.9 percent.
Britain’s government bonds fell for the first time in five days. Gilts declined before the U.K. debt office is scheduled to sell 2.25 billion pounds in bonds due in 2045 next week. Ten-year benchmark securities were still higher on the week as funds sought to align holdings with indexes they track for the end of the month.
Supply Returns
“We’ve had some short-term factors that have aided the gilt market with light supply and index month-end events,” said Simon Peck, a rates strategist at Royal Bank of Scotland Group Plc in London. “Now we are going through a reassessment of the fact supply returns, long-end issuance next week, last week of buybacks, the issuance schedule picks up into the end of the year and that feeds through into valuations.”
The 10-year gilt yield rose seven basis points, or 0.07 percentage point, to 2.40 percent. That’s down from 2.47 percent at the end of last week. The price of the 2.75 percent bond due in September 2024 fell 0.645, or 6.45 pounds per 1,000-pound face value, today to 103.105.
The U.S. five-year yield rose above that on similar-maturity gilts this week, an additional sign investors were betting on relatively higher interest rates in America. Gilts returned 8.3 percent this year through yesterday, Bloomberg World Bond Indexes show. Treasuries gained 4.2 percent and German securities earned 7.6 percent.
Brazil’s Real Leads World Currency Gains as Runoff Election Seen
Brazil’s real led world currency gains on wagers President Dilma Rousseff won’t win re-election in a first-round vote as the nation contends with a recession and above-target inflation. The real climbed 0.7 percent to 2.4777 per U.S. dollar at 2:42 p.m. in Sao Paulo, the biggest advance among 31 major currencies tracked by Bloomberg. The real dropped earlier today to a level weaker than 2.5 per dollar for the first time since 2008 and for the week was still down 2.3 percent.
The currency’s projected swings have heightened as the weekend vote approaches, with one-month implied volatility on options for the real increasing to almost 18 percent, the highest among developing nations. Speculation that a new government would revive economic growth and curb inflation helped to push the real to a one-month high in August.
“People know Rousseff will be in the second round, but the campaign will be tough,” Deives Ribeiro, a currency manager at Fair Corretora de Cambio e Valores in Sao Paulo, said in a telephone interview.
Rousseff will garner 40 percent of support in the first round of votes on Oct. 5, followed by 24 percent for Marina Silva and 19 percent for Aecio Neves, according to an Ibope poll of 3,010 published yesterday. The leading candidate needs more than 50 percent of valid votes, or more than all other candidates combined, to win the election and avoid a second round against the runner-up Oct. 26.
Second Round
The president would beat either challenger in a second round, according to the Ibope poll Sept. 29-Oct. 1, which has a margin of error of plus or minus two percentage points. To support the currency, Brazil sold today $196.9 million of foreign-exchange swaps as part of its intervention program and rolled over contracts worth $392.8 million.
HSBC Holdings Plc projected this week in a research report to clients that the real will weaken to 2.6 per U.S. dollar “as soon as end-2014 if the sentiment of our post-election scenario of ‘no policy change’ prevails.” Standard & Poor’s lowered Brazil’s credit rating in March to one level above junk, citing a slowdown in economic growth and what it said was a deterioration in fiscal accounts. Moody’s Investors Service changed the outlook on the country’s rating from stable to negative last month.
The Treasury said this week that the central government’s primary deficit, excluding interest payments, widened in August to 10.4 billion reais while the median forecast of analysts surveyed by Bloomberg was for a balanced budget.
Swap rates, a gauge of expectations for changes in borrowing costs, dropped eight basis points, or 0.08 percentage point, to 11.95 percent today on the contract due in January 2016. They’re up 27 basis points since Sept. 26. The central bank raised the target lending rate by 3.75 percentage points in the year through April to 11 percent before holding it there for the past three meetings.
source: Bloomberg