The dollar was set for the biggest monthly gain in more than two years as reports showing a stronger US economy added to bets the Federal Reserve will boost interest rates sooner than its peers in Europe and Japan.
The greenback rose to the strongest level in 22 months versus the euro before the European Central Bank meets October 2 to discuss the region's slumping economy. The yen approached the weakest in six years amid slowing inflation and mixed signals on the speed of pension-fund changes. Emerging-market currencies headed lower, while the Bloomberg Dollar Spot Index reached the highest since 2010.
The Bloomberg Dollar Spot Index has gained 3.7 per cent to 1,067.29 this month in New York, the highest on a closing basis since June 2010. The monthly gain would be the biggest since May 2012. The index increased 1.1 per cent over the past five days in its sixth-straight weekly gain.
The dollar appreciated 1.1 per cent this week to $1.2684 per euro, touching $1.2677, the strongest level since November 2012. The yen declined 0.2 per cent to 109.29 per dollar after touching 109.46 on September 19, the weakest level since August 2008. Japan's currency gained 0.8 per cent to 138.63 per euro.
Volatility Rises
A measure of currency-market price swings increased to the highest level in almost six months. JPMorgan Chase & Co.'s Global FX Volatility Index increased to 7.69 percent, the most on a closing basis since March 28. The average this year is 6.89 percent.
Brazil's real is the biggest loser among the dollar's 31 major counterparts this month as investors weighed voter support for President Dilma Rousseff in next month's election amid a recession and inflation. The real has dropped 7.6 percent to 2.4201 per dollar, and it touched 2.4433 yesterday, the weakest since Jan. 29.
New Zealand's dollar has tumbled 5.9 percent as central-bank Governor Graeme Wheeler called its level "unjustified," one of policy makers' criteria for intervention. The kiwi, nicknamed for the image of the flightless bird on the NZ$1 coin, reached 78.60 U.S. cents yesterday, the lowest level since September 2013.
'More Jittery'
The kiwi led currencies of commodity-exporting nations including the Australian dollar lower amid doubts about the sustainability of economic growth in China, the world's second-biggest economy.
"Investors are getting a bit more jittery on the commodity currencies," Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA, said Sept. 23.
The yen fell as Health Minister Yasuhisa Shiozaki, whose ministry oversees the Government Pension Investment Fund, said pension reform would go ahead.
Shiozaki said at a briefing in Tokyo yesterday there's no plan to postpone a law change that would improve governance of the Government Pension Investment Fund. A review of asset allocation may see it increase riskier investments, including foreign stocks and debt.
The Bank of Japan, which meets Oct. 7, is trying to boost inflation to 2 percent by pumping 60 trillion yen ($550 billion) to 70 trillion yen a year into the economy. BOJ Governor Haruhiko Kuroda said Sept. 18 in Tokyo he won't hesitate to adjust monetary policy if needed.
Flagging Confidence
The euro fell this week after Germany's Ifo institute said its business-climate gauge slid to 104.7 this month, the lowest since April 2013, from 106.3 in August. The report followed purchasing-managers' indexes that showed growth in euro-area manufacturing and services slowed this month.
The European Central Bank unexpectedly cut its main refinancing rate to a record 0.05 percent Sept. 4 and introduced additional stimulus. Bank President Mario Draghi said this week policy makers "stand ready to use additional unconventional instruments" if necessary.
"The euro is going to continue to drift lower," Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London, said Sept. 24. "As a consequence of a weaker Germany, by definition the euro zone is appreciably weaker too, and it just puts a further onus on the ECB."
Dollar Bets
Hedge funds and other large speculators raised net bullish futures bets on the dollar versus eight major peers to 238,056 contracts, the most in eight months, from 185,458 a week ago, data from the Commodity Futures Trading Commission in Washington showed yesterday.
The Fed is considering when to raise interest rates for the first time since 2006. There's a 78 percent chance the benchmark rate target will go up by September 2015, according to fed-fund futures data compiled by Bloomberg.
The U.S. economy grew at a revised 4.6 percent annualized rate last quarter, the fastest since the last three months of 2011 and up from a previous estimate of 4.2 percent, the Commerce Department said yesterday. U.S. employers added 215,000 jobs in September, versus 142,000 in August, economists surveyed by Bloomberg forecast before the Labor Department reports the data Oct. 3.
"The payrolls number could be huge," said Alan Ruskin, global head of Deutsche Bank AG's Group of 10 foreign exchange in New York. "We've had this stronger-dollar trend even in the midst of what was quite a disappointing payrolls number last time around. If payrolls suddenly comes out meaningfully stronger than expected, I think it would further reinforce the stronger-dollar trend."
