Dollar Posts Strong Gains on Jobs Outlook
The dollar on Tuesday had its biggest rally against the euro in a year and surged to a four-month high against the yen, in part on speculation U.S. employment growth is accelerating.
That could hasten the day the Federal Reserve would begin to raise interest rates, which in turn could attract more foreign investors to U.S. bonds, bolstering the dollar, analysts said.
But the greenback’s latest advance also was driven by technical factors, experts said: As the dollar rebounds after plunging for much of the last two years, many traders are rushing to take profits in the euro and other currencies, adding more fuel to the market’s shifts.
The euro tumbled to $1.222 in New York from $1.245 on Monday. It was the biggest gain for the dollar since March 13. The euro has fallen from a record high of $1.293 on Feb. 18.
The dollar closed at 110.06 yen, up from 108.92 on Monday and the highest since Nov. 7.
“Everyone was running for the door at the same time” as the dollar rose through important technical levels on traders’ charts, said Chris Melendez, president of Tempest Asset Management in Irvine.
Early today in Tokyo the dollar continued to gain. The euro was at $1.218 and the yen was at 110.13 per dollar.
Strength in Friday’s U.S. report on February employment “would move the Fed forward,” in turn raising expectations for the dollar, said David Durrant, currency strategist for Bank Julius Baer & Co. in New York.
Optimism about the February jobs report was bolstered Monday after a U.S. manufacturing trade group said its index of employment growth strengthened markedly last month.
“I think the picture clearly changed” on Monday, said Kikuko Takeda, market economist at Bank of Tokyo-Mitsubishi. “It’s becoming clearer that the dollar has bottomed out.”
Officially, the Bush administration has said it wants a strong dollar. But most economists believe the administration has tacitly supported the currency’s long slump because of the beneficial effects on U.S. exports: They become cheaper for foreign buyers as the dollar falls.
Recently, however, European authorities have increasingly complained that the euro had become too strong and was hurting the continent’s exporters by raising prices of their goods.
German Chancellor Gerhard Schroeder last week urged the European Central Bank to cut its key short-term interest rate, now 2%, to lessen the appeal of euro-denominated assets.
Japan also has worried about the dollar’s weakness and has aggressively purchased dollars and sold yen over the last year.
Those trades now may be bearing fruit, Takeda said. “The demand-supply balance of the market seems to have changed” in favor of the buck, he said.
