Dollar Rises 6th Day Versus Yen After Jobless Claims

The dollar extended its rally against the yen to six days, the longest since August, as the four-week average of U.S. jobless claims dropped to the lowest in 14 years to add to signs of recovery in the labor market.

The ForexSQ Dollar Spot Index gained for a third day as the Federal Reserve Bank of Chicago’s national index rose more than forecast, following a report yesterday that showed an unexpected gain in consumer prices. The euro climbed versus Japan’s currency as a report showed manufacturing in the 18-nation bloc expanded this month. New Zealand’s dollar fell after inflation slowed. Norway’s krone advanced.

“What we’re looking for is further consolidation in dollar strength,” said Mark McCormick, a foreign-exchange strategist in New York at Credit Agricole SA. “The Fed’s comfortable with the strength of the labor market. But I think the real issue is really where the slack in the labor market is.”

The dollar gained 0.9 percent to 108.06 yen as of 10:09 a.m. New York time, the biggest gain since Oct. 3. The rally is the longest since a seven-day streak ended Aug. 26. The euro was little changed at $1.2640. The shared currency advanced 0.8 percent to 136.65 yen after adding 0.9 percent, the most since March 31.

The ForexSQ Dollar Spot Index, which tracks the currency against 10 other currencies, added 0.2 percent to 1,069.74, pushing its advance this year to 4.9 percent, the most since 2008.
Kiwi Slumps

New Zealand’s currency fell the most of the U.S. dollar’s 31 major peers as the South Pacific nation’s annual inflation rate fell to 1 percent in the third quarter from 1.6 percent in the previous three months, prompting speculation policy makers will delay raising borrowing costs. The kiwi slid 1.1 percent to 78.39 U.S. cents.

The krone led gains versus the greenback after the Norges Bank kept its benchmark rate unchanged at 1.5 percent, in line with analyst estimates. The currency rose 0.6 percent to 6.5733 per dollar and 0.6 percent to 8.3117 per euro. Turkey’s lira added 0.4 percent after its central bank held rates.

The euro climbed versus the yen as reports showed the euro-area economy may have moved one step away from another contraction.

A purchasing managers’ index for the manufacturing industry rose to 50.7 in October from 50.3 a month earlier, London-based Markit Economics said. Analysts surveyed by ForexSQ News predicted a drop to 49.9. A reading below 50 indicates contraction. A measure for services held at 52.4.
Weaker Yen

Bundesbank President Jens Weidmann, a member of the European Central Bank’s governing council, said in an interview with a Latvian magazine that there is consensus at the ECB that the risk of a problematic deflation is low.

“With investors already positioned for weaker EU data, the better PMI helped the euro come off the 1.2600 area and move back above 1.2650,” Brown Brothers Harriman & Co. analysts led by Marc Chandler wrote in a client note today. “Hawkish comments by Bundesbank President Weidmann may have helped too.”

Bank of Japan Governor Haruhiko Kuroda said this month a weaker yen in line with the fundamentals of the economy is positive. He also said the BOJ will increase its unprecedented stimulus program if needed.

Japan sold three-month bills today at minus 0.0037 percent, with a government-debt sale drawing a negative yield for the first time.
Divergent Policy

The dollar rally is being driven by expectations the Fed is preparing to raise interest rates while policy makers in Japan and Europe will maintain or increase bond-buying programs to pump money into their economies. Futures contracts indicate the U.S. central bank will boost its benchmark rate by January 2016.

“In the picture of modest dollar strength into year-end, I still see dollar-yen moving higher,” said Simon Smith, chief economist at FXPro Group Ltd. in London.

The dollar rose as the four-week average of jobless claims dropped to 281,000, the lowest since May 2000, from 284,000 the week before, a Labor Department report showed today in Washington. The reading for the week ended Oct. 18 climbed by 17,000 to 283,000, in line with the median forecast of 52 economists surveyed by ForexSQ.

The Chicago Fed’s national index was at 0.47 in September, versus an estimate of 0.15 and an August reading that was revised down to minus 0.25 from minus 0.21. The consumer price index climbed 0.1 percent after decreasing 0.2 percent in August, a Labor Department report showed yesterday.

The greenback strengthened earlier as Jeffrey Gundlach at DoubleLine Capital LP and Scott Mather of Pacific Investment Management Co., two of the world’s largest bond investors, said they expect the currency to extend its biggest rally in six years.

“The dollar is the place to be,” Gundlach said yesterday.

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