LONDON (AFX) - The dollar rallied against the major currencies Thursday
, extending gains for the year as expectations build U.S. jobs growth
could top 200,000 in December.
"It's not just a correction anymore. There are now fresh, speculative
flows supporting the U.S. dollar," said Peter Stoneham, managing
currency analyst at Thomson IFR in London.
U.S. job figures, due out Friday, are forecast to show that nonfarm
payrolls grew by 186,000 in December, beating the prior month's 112,000
-job gain.
The dollar rose 0.6 percent against the euro at $1.3191 and rose 0.7
percent on the British pound at $1.8722. The dollar traded at 104.88
yen, compared with 104.10 yen late Wednesday in the United States.
Masatoshi Nishi, chief manager of the treasury and securities division
at Saitama Resona Bank in Tokyo, overnight said investors were buying
of the dollar to pare their short positions, and the greenback could
come under pressure as they take profits on these positions.
"That would pave the way for more dollar selling," he said.
U.S. trade Wednesday
The dollar hit its best level against the euro in three weeks before
paring gains in U.S. trading Wednesday, amid heightened prospects that
the U.S. Federal Reserve would continue to raise interest rates.
Currency traders said the inability of the dollar to extend its gains
after an upbeat reading for a U.S. measure of the services economy
could mean the dollar's three-day rally had gone too far without a
pullback.
The Institute for Supply Management's nonmanufacturing index
unexpectedly rose to 63.1 percent from 61.3 percent in November. This
is the highest level since July.
The dollar's mostly technical-driven, early-year bounce from
December's multiyear lows was accelerated by the release on Tuesday of
minutes from the Fed's Dec. 14 policy meeting.
Currency analysts at Nomura Securities believe markets are
interpreting the minutes as an indication that the Fed will not take a
break in the tightening cycle. "Hence, depending on the incoming data,
all meetings for the foreseeable future are likely to deliver 25 basis
point rate hikes."
Higher U.S. rates could draw more foreign capital to U.S. markets, a
prospect that pushed the euro to as low as $1.3213 earlier. One euro
was worth $1.3255 in late trade, down 0.2 percent on the day.
The dollar gained initially against the Japanese yen, but turned
negative. One dollar was worth 104.10 yen, a loss of 0.2 percent
compared to where it stood in late U.S. trading Tuesday.
Short-term interest-rate futures contracts reflect increased
expectations among investors that the Fed's current 2.25 percent target
will be as high as 3.25 percent by the conclusion of the central
bank's June meeting. Before, financial markets thought the Fed might
pause in raising rates by the late spring.
Foreign capital inflows are seen as a key short-term offset to record
U.S. trade and budget deficits, bringing relative stability to the
economy and the dollar.
U.S. data, for the most part, continue to outshine results from the
world's other economic heavyweights.
The eurozone purchasing managers' index for the services sector was
unchanged at 52.6 in December.
The key indicator for currency markets has been the imbalance in the
U.S. current account, a broad measure of trade that includes investment
flows.
It stands at more than 5 percent of U.S. gross domestic product, the
biggest share ever. The United States must draw enough foreign capital
to finance this gap, which it has managed to do so far.
This story was supplied by CBSMarketWatch. For further information see
www.cbsmarketwatch.com.
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