The dollar strengthened against the euro after a report showed U.S. employment growth was higher than forecast last month, sustaining speculation the Federal Reserve is moving toward reducing its monetary-stimulus program.
The U.S. currency gained versus a majority of its most-traded peers as a Labor Department report showed employers in added 175,000 jobs in May and the unemployment rate rose to 7.6 percent as the labor force expanded. The yen increased earlier after Finance Minister Taro Aso said he had no immediate intention to weaken Japan’s currency.
“The initial reaction was a stronger dollar, and I think that means the market saw this as a bit stronger than they had been expecting,” Brian Daingerfield, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “The number is not strong enough to guarantee that tapering is coming sooner, and it’s not weak enough to push tapering expectations even further out.”
The dollar rose 0.2 percent to $1.3218 per euro at 5 p.m. New York time. The greenback added 0.6 percent to 97.56 yen. Japan’s currency fell 0.4 percent to 128.96 per euro.
Futures traders decreased their wagers that the yen 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 yen compared with those on an increase -- so-called net shorts -- was 82,744 on June 4, compared with net shorts of 99,769 a week earlier.
Futures traders added to bets the pound will decline against its U.S. peer, giving them their most bearish position in data starting in 1992. Net shorts on sterling versus the greenback totaled 77,738 on June 4, versus 74,525 a week earlier.
JPMorgan Chase & Co.’s G-7 Volatility Index, based on currency option premiums, reached 10.62 percent, the highest level since June 2012.
Electronic foreign-exchange options, Canadian dollar, yen and open-interest in Australia’s currency climbed to a record yesterday at CME Group Inc., the world’s largest futures exchange. Overall volume of foreign-exchange futures and options yesterday was 1.9 million contracts with a notional value of $238.9 billion, the company said today in a statement. It was largest of the year in notional value and the fourth largest day ever, CME Group said.
Trading in over-the-counter foreign-exchange options totaled $37.9 billion, compared with $42 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate was $14.1 billion, the largest share of trades at 37 percent. Dollar-Chinese yuan options were the second most-actively traded, at $4.6 billion, or 12 percent.
Yen-dollar options trading was 15 percent more than the average for the past five Fridays at a similar time in the day. Dollar-yuan options trading was 102 percent more than average.
Canada’s dollar gained against its U.S. peer as the nation’s employment rose by 95,000 in May, the most since August 2002. The jobless rate fell to 7.1 percent from 7.2 percent even as more people joined the workforce, Statistics Canada said in Ottawa.
The loonie, as the Canadian dollar is known for the image of the aquatic bird on the C$1 coin, rose 0.7 percent to C$1.0197 per U.S. dollar, after gaining as much as 1 percent.
Australia’s dollar dropped versus the yen, set for its worst weekly rout since 2011, before Chinese data tomorrow forecast to show growth in imports slowed, dimming the demand outlook for commodities.
The Australian currency dropped 0.4 percent to 92.65 yen after touching the least since Jan. 2. It’s slumped 3.7 percent in the five days through today.
Yields on 10-year Australian government bonds tightened to 1.08 percentage points relative to similar-maturity Treasuries, the narrowest spread since November 2008. Investors have sought higher yielding assets amid the U.S. central bank’s unprecedented easing program.
Hungary’s currency gained against the euro for a second day as industrial output expanded in April for the first time this year, exceeding economist forecasts and underscoring the government’s prediction of an economic turnaround.
The forint advanced 0.5 percent to 296.09 per euro.
The U.S. employment data may be “mildly” positive for the dollar as it keeps alive speculation that the Fed will reduce asset purchases and signals the economy continues to grow while withstanding reductions in government spending, said Alan Ruskin, the New York-based global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG.
“The tapering story is very much in play,” Ruskin said in an e-mail. “This data also suggests the economy is holding up well in the face of fiscal drag.”
Economists cut their estimates for how much the central bank will reduce the amount of its monthly asset purchases, a Bloomberg survey shows. Policy makers led by Chairman Ben S. Bernanke will trim their so-called quantitative easing program to $65 billion a month at the Oct. 29-30 meeting of the Federal Open Market Committee, from the current level of $85 billion, according to the median estimate in the survey of 59 economists this week.
Fed Bank of Dallas President Richard Fisher, one of the most vocal critics of quantitative easing by the central bank, this week called for a reduction in monthly asset purchases.
“Expectations of tapering is a positive for the U.S. dollar as it means a slowing in the expansion of the Fed’s balance sheet,” Eric Viloria, a senior currency strategist at Gain Capital Group LLC in New York, said by e-mail. “The May nonfarm payroll number was better than expected and the increase in the unemployment rate also coincides with an increase in labor-force participation.”
The yen advanced, extending its biggest weekly gain versus the dollar in almost five years.
The Bank of Japan’s stimulus plan announced in April involves monthly purchases of more than 7 trillion yen ($70 billion) in Japanese government bonds. The yen slumped more than 20 percent against the dollar from the middle of November through May amid expectations of expanded monetary and fiscal stimulus under Prime Minister Shinzo Abe.
Japan’s shares tumbled and the yen rallied yesterday after Abe said a legislative campaign to loosen rules on businesses, the “third arrow” of his revival plan, won’t begin for months.
“The comments from Abe weren’t satisfactory for the market,” said Roberto Mialich, a senior currency strategist at UniCredit SpA in Milan. “That’s reinforcing the move higher in the yen. All markets have been heavily short the yen and so people have been caught wrong-footed which is forcing heavy buying. As long as the stock market remains under pressure the yen can remain firm.” A short position is a bet an asset will decline.
The yen has added 2.7 percent in the past month, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro advanced 2.2 percent and the dollar climbed 1 percent.
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