U.S Dollar Rises to 6-Week High Versus Yen as Jobs Gain Backs Taper

A money changer inspects U.S. dollar bills at a currency exchange in Manila

The dollar rose to a six-week high against the yen as employment gains exceeded forecasts, boosting speculation that the Federal Reserve will continue to pare its monetary stimulus that’s seen as debasing the currency.

The U.S. currency rallied as the Labor Department reported employers added 175,000, compared with the median estimate in a ForexSQ survey of economists, which called for 149,000 jobs added in February. The euro reached the highest level in more than two years versus the dollar as bets on further European Central Bank stimulus waned, boosting demand for the 18-nation currency.

“There’s been nothing buy dollar buying across the board,” Brad Bechtel, managing director at Faros Trading LLC in Stamford, Connecticut, said in a phone interview. “Fed officials have been very adamant about high hurdles to change the pace of tapering, but this seals the deal. They’re definitely not going to be changing the pace anytime soon.”

The dollar gained 0.5 percent to 103.59 yen at 8:42 a.m. in New York, reaching the strongest level since Jan. 23. The euro added 0.1 percent to $1.3870 after reaching $1.3915, the highest level since Oct. 31, 2011. The shared currency gained 0.5 percent to 143.63 yen.

’Relief Bounce’

“We got a relief bounce in employment, and this is encouraging for the U.S. economy,” Vassili Serebriakov, a foreign-exchange strategist at BNP Paribas SA, said by phone from New York. “It’s consistent with tapering at the current pace, and that’s why we’re seeing the dollar rise.”

The dollar climbed to an almost two-month high Nov. 8 after a Labor Department report showed the economy added more jobs than forecast last month, boosting bets the Federal Reserve will reduce stimulus. The greenback gained against all of its 16 most-traded peers except Mexico’s peso as payrolls grew by 204,000 in October, versus the median forecast in a Bloomberg News survey for a 120,000 advance.

Frigid temperatures and heavy snow in the Northeast and Midwest have weighed on recent economic data. A report from the Commerce Department last month showed retail sales declined in January by the most since June 2012, falling 0.4 percent after a 0.1 percent drop in December. Housing starts dropped 16 percent in January from the prior month, data on Feb. 19 showed.

Central bank policy makers are focusing on the job market to help guide the pace at which they’re reducing stimulus. The Federal Open Market Committee’s next meeting ends March 19. The Fed will continue cutting monthly bond purchases by $10 billion per meeting, based on a Bloomberg survey of economists.

The Fed’s view on the economy could be complicated by weather distortions.

Fed Outlook

“What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to a softer outlook,” Fed Chair Janet Yellen said while speaking to the Senate Banking Committee Feb. 27.

Futures traders are betting the Canadian dollar will decline against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the Canadian dollar compared with those on a gain — so-called net shorts — was 58,591 on Feb. 25, compared with about 19,379 contracts betting on appreciation in February 2013.

“There are a lot of long dollar Canada positions out there,” Carl Forcheski, a director in corporate currency sales at Societe Generale SA in New York, said before the employment data was released. “If it looks like the U.S. labor market is getting a little bit better, that could help translate into more people getting out of long U.S. positions with Canada.”

ECB Policy

The ECB left its benchmark interest rate at 0.25 percent at a meeting in Frankfurt yesterday as forecast by 40 out of 54 economists surveyed by Bloomberg News. The other 14 were predicting a rate cut.

Euro-area inflation, which was at 0.8 percent in February, will accelerate to 1.7 percent in the fourth quarter of 2016, according to ECB forecasts. Consumer prices are projected to rise 1 percent this year. ECB officials see inflation at 1.3 percent in 2015 and an average rate of 1.5 percent in 2016.

“Expectations for further easing have been pushed back, creating pressure on the euro to rise toward $1.40,” said Minori Uchida, the head of global-market research at Bank of Tokyo-Mitsubishi UFJ Ltd. in Tokyo. “But as the euro rises, it’ll increase disinflationary pressure, eventually necessitating more stimulus.”