Dollar Strengthens to 11-Month High on Fed Outlook; Kiwi Slides

Big 5

The dollar rose to the highest in almost a year against the euro amid speculation the Federal Reserve will raise interest rates in 2015, while the European Central Bank signaled additional measures to support growth.

The U.S. currency rose to the highest since January against the yen before reports this week that economists said will show new home sales rebounded and durable goods orders climbed. The euro fell versus 12 of its 16 major counterparts after ECB President Mario Draghi said inflation expectations have declined. New Zealand’s dollar slumped to a six-month low as analysts predict a report tomorrow will show the nation’s trade balance slipped into deficit last month.

“There’s a significant divergence in the message coming out of the Fed and the message coming out of the ECB,” said Callum Henderson, global head of foreign-exchange research at Standard Chartered Plc in Singapore. “That is a major supportive factor for the dollar against G-10, particularly against the euro and the yen,” he said, referring to the Group of 10 currencies.

The dollar advanced 0.3 percent to $1.3204 per euro as of 6:48 a.m. in London after rising to $1.3184, the strongest since Sept. 9. The currency has posted six consecutive weekly gains. The greenback climbed 0.2 percent to 104.18 yen after reaching 104.49, the highest since Jan. 23. The euro was little changed at 137.64 yen.

Dollar Index

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, rose 0.1 percent to 1,030.29 after advancing to 1,031.45, the most since Feb. 3.

The U.S. economy has made considerable progress and the labor market is healing, Yellen said in an Aug. 22 speech in Jackson Hole, Wyoming. Her remarks appeared in line with the message from minutes of the July Federal Open Market Committee meeting, which showed officials growing more aware that labor markets are approaching full employment.

“Dollar buying continues after Yellen’s Jackson Hole speech pushed up U.S. interest rates,” said Shinichiro Kadota, a foreign-exchange strategist at Barclays Plc in Tokyo. “Markets will be watching the U.S. data this week to reconfirm the underlying economic outlook.”

New home sales climbed 5.7 percent last month after sliding 8.1 percent in June, according to a Bloomberg News survey before today’s Commerce Department report. Economists predict separate data tomorrow will show orders for durable goods in July rose at the fastest pace since March 2011.

Wider Spread

The dollar advanced for a sixth day against the yen as the extra yield investors get for holding two-year Treasuries instead of similar-maturity Japanese bonds widened to the most since July 31, according to data compiled by Bloomberg.

The dollar has gained 1.5 percent in the past month, the best performer after Norway’s krone among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 0.4 percent and the yen declined 1.1 percent.

The euro fell for a second day against the dollar before the Ifo institute today publishes its German business climate index. Analysts surveyed by Bloomberg forecast the gauge fell to 107 in August, a fourth monthly decline and the lowest level since July 2013.

Draghi said investor bets on euro-area inflation have “exhibited significant declines at all horizons” in August. Policy makers “will use all the available instruments needed to ensure price stability over the medium term,” he said during an Aug. 22 speech at Jackson Hole.

Hedge Funds

Hedge funds and other large speculators turned the most bearish on the euro in more than two years, according to the Commodity Futures Trading Commission in Washington. The difference in the number of wagers on a decline in Europe’s currency versus those on a gain — known as net shorts — rose to 138,825 in the week through Aug. 19, the most since July 2012.

National Australia Bank Ltd. lowered its interim euro-dollar strategy target to $1.30 from $1.32, according to a report today by Ray Attrill, global co-head of currency strategy in Sydney.

New Zealand’s dollar fell at least 0.4 percent against all its 16 major counterparts before tomorrow’s trade report.

“The NZD is declining because of its recent status as an outperforming currency and recent data suggesting the economy has settled into steady growth from a period of outperformance,” ANZ Bank New Zealand Ltd. analysts including Chief Economist Cameron Bagrie in Wellington, wrote today in an e-mailed note to clients.

The kiwi dropped 0.7 percent to 83.48 U.S. cents after sliding to 83.36 cents, the lowest since Feb. 27.

Higher-yielding currencies also weakened as investors sought haven assets before Ukraine President Petro Poroshenko meets his Russian counterpart Vladimir Putin tomorrow during trade talks in Belarus.

Most Asian currencies declined. The Indonesian rupiah weakened 0.3 percent to 11,715 per dollar, Malaysia’s ringgit slid 0.2 percent to 3.1675 and South Korea’s won fell 0.2 percent to 1,020.05.