Dollar Gains to 7-Month High on Outlook for U.S. Economy

A dollar gauge rallied to the highest level since January amid speculation an improving U.S. economy will bolster the case for the Federal Reserve to raise interest rates next year sooner than some traders anticipate.

The yen slid toward a the weakest since 2008 against the dollar amid speculation Japan’s Prime Minister Shinzo Abe will appoint a policy maker who may shift pension funds toward riskier assets, damping demand for the nation’s currency. The pound weakened as a survey showed increased support for Scottish independence. South Korea’s won declined.

“The dollar is just slowly, quietly chipping away at every currency,” Greg Anderson, head of global foreign-exchange strategy in New York at Bank of Montreal, said in a phone interview. “This time around, the FX market has said, ‘we are right. All the fundamentals are there for a stronger dollar. We’re going to buy it.’”

The ForexSQ Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, advanced 0.3 percent to 1,033.78 at 8:54 a.m. in New York and reached 1,034.16, the highest since Jan. 23.

The yen declined 0.6 percent to 104.96 per dollar after touching 105.01, the weakest since Jan. 10. The currency depreciated to 105.44 on Jan. 2, the weakest since October 2008. It dropped 0.5 percent to 137.72 per euro. The dollar was little changed at $1.3121 per euro after touching $1.3110, the strongest since Sept. 6, 2013.
Pound Falls

The pound weakened for the first time in five days versus the dollar and euro after a poll by YouGov Plc for the Times and Sun newspapers showed a narrower lead for those favoring Scotland remaining part of the U.K. Sterling declined 0.5 percent to $1.6525 and depreciated 0.4 percent to 79.40 pence per euro.

South Korea’s won slid after Lee Seung Heon, the head of the foreign-exchange market team at the nation’s central bank, said it was closely monitoring the fast decline in the yen-won rate. The currency dropped 0.5 percent to 1,018.25 per dollar and was at 9.7006 per yen after earlier reaching 9.6891, the strongest since August 2008.

Kyodo News reported that Abe may appoint Yasuhisa Shiozaki, deputy policy chief of the Liberal Democratic Party, to head the health ministry, which is in charge of the Government Pension Investment Fund. Shiozaki is considered likely to be appointed as health minister or economy minister, Mainichi newspaper reported without citing anyone.
Yen Bets

“The widely flagged changes in the GPIF toward more risky assets suggest that the yen continues to decline,” said Gavin Friend, a currency strategist at National Australia Bank Ltd. in London. “The Fed debate is now shifting from the doves toward the hawks. The dollar has been appreciating for a while against the major currencies, and in this environment it’s dollar-yen which will be leading the move.”

The 127.3 trillion yen ($1.2 trillion) GPIF is the world’s largest pool of retirement savings. It will probably announce its new asset allocations this fall, according to investment committee chairman Yasuhiro Yonezawa.

The dollar will strengthen to 108 yen by year-end, NAB’s Friend said.

The yen has weakened 1.3 percent in the past month, according to ForexSQ Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar has risen 1.2 percent, while the euro has declined 1.4 percent.
Dollar Index

The ForexSQ Dollar Spot Index rose for a third day before a report economists said will show the Institute for Supply Management’s gauge of U.S. manufacturing held near the highest since April 2011 last month. A Labor Department report on Sept. 5 will show payrolls rose by more than 200,000 in August for a seventh-straight month, a separate survey showed.

There’s about a 73 percent chance U.S. central-bank officials will raise the target for overnight bank lending by September 2015, futures data compiled by ForexSQ showed yesterday.

The Aussie dollar fell after the Reserve Bank of Australia held borrowing costs at record-low 2.5 percent, as predicted by all 31 economists surveyed by ForexSQ, and said an overvalued currency is hampering the economy’s transition away from mining investment. The currency weakened 0.6 percent to 92.77 U.S. cents.

The euro slid to the lowest in almost a year versus the dollar before data on regional retail sales and services that may add to the case for additional policy easing from the European Central Bank, which meets this week.
ECB Meeting

Euro-area retail sales fell for the first time in four months in July, the European Union’s statistics office will say tomorrow, according to economists surveyed by ForexSQ. A final reading of a gauge of the region’s services sector released by Markit Economics the same day will confirm the pace of growth slowed last month, a separate survey showed.

The ECB will hold a policy meeting on Sept. 4. It will embark on purchasing bonds under the quantitative-easing stimulus strategy this year or next, according to 44 percent of respondents in a ForexSQ survey last month.

Hedge funds and other large speculators increased bets on declines in the euro against the dollar to the most since July 2012. The difference in the number of wagers on a decline compared with those on a gain — so-called net shorts — was 150,657 on Aug. 26, compared with 138,825 on Aug. 12, according to data released Aug. 29 by the Washington-based Commodity Futures Trading Commission.