(Bloomberg) -- The dollar climbed versus the yen for an eighth day, its longest run of gains since July 2014, amid speculation that employment data Friday will boost the probability of the Federal Reserve tightening monetary policy this year.
The U.S. currency rose against all Group-of-10 peers after a report Thursday showed initial claims for unemployment insurance last week fell to almost the lowest level since 1973, while data released on Wednesday revealed U.S. service companies expanded in September at the fastest rate in almost a year. That helped push up the premium investors demand to hold two-year Treasuries over similar-maturity bonds from six other major economies to the highest this year.
Signs of improvement in the world's largest economy, coupled with comments from Fed officials that a rate increase is increasingly likely this year, helped pare the dollar's loss against its major counterparts in 2016 to 3 percent. The central bank may find the scope for additional tightening in its quest to normalize monetary policy and rekindle divergence with stimulative policies in Europe and Japan as a driver of demand for the U.S. currency.
“The greenback has been benefiting from less pessimism, rather than outright optimism, at this point and another strong payrolls result boosts the case for a hike in the coming months,” said Bipan Rai, a senior foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce in Toronto. Rai expects a payrolls gain potentially beyond 200,000, which would be “constructive” for the dollar.
The dollar rose 0.4 percent to 103.99 yen at 5 p.m. in New York, and reached the highest level since Sept. 2. The Bloomberg Dollar Spot Index, which measures the currency against a basket of 10 peers, added 0.4 percent and is close to exceeding its 200-day moving average for the first time since March.
Fed Bank of Chicago President Charles Evans flagged Wednesday that one rate increase by year-end is likely if data continue to improve, while Richmond Fed Bank President Jeffrey Lacker said he saw a case for raising rates.
The market-implied probability of a hike by December rose to 64 percent from 51 percent at the start of last week. The odds for action in November have climbed to 24 percent from 17 percent in the same period, fed fund futures data compiled by Bloomberg show. The calculation is based on the assumption the Fed's target trades at the middle of the new band after the central bank's next boost.
Expectations for U.S. interest-rate increases “play a critical part” in driving the dollar up, said Peter Rosenstreich, head of market strategy in Gland, Switzerland, at Swissquote Bank SA. “For currencies that have low interest rates like the yen, it is more apparent right now.”
The yield on two-year Treasuries rose for the fifth day to 0.85 percent, taking the spread over the average yield on similar-maturity securities of Canada, Japan, Germany, France, Italy and the United Kingdom to 101 basis points, the highest this year.
U.S. employers added 172,000 jobs in September, according to estimates in a Bloomberg survey, an increase from a three-month low reached in August. Labor markets have been tightening and pushing up wages, while inflation, excluding food and energy prices, has been moving closer to the central bank's 2 percent objective.
Economic data this week “are giving the market an indication that tomorrow's payroll report has some scope to surprise to the upside,” said Manuel Oliveri, a currency strategist at Credit Agricole SA in London. “If you have indicators that the labor market continues to improve, it's something that may actually put the Fed closer to tightening monetary policy in December. That's the main reason why the dollar is very much in demand for now.”
--With assistance from Chikako Mogi To contact the reporters on this story: Maciej Onoszko in Toronto at monoszko@bloomberg.net, Marianna Aragao in London at mduartedeara@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Paul Cox, Mark Tannenbaum
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
