The dollar climbed to its strongest in 11 weeks against the euro and hovered near a four-month high versus the yen in London on speculation job growth in the U.S. is increasing chances the Federal Reserve will raise interest rates. The Fed today will release its survey of regional U.S. economic developments, including anecdotal reports on job conditions. Some economists expect the Labor Department on Friday to say more jobs were created in February than in any month since November 2000. The Fed's benchmark interest rate is at a 45-year low of 1 percent, half of that of the European Central Bank. ``Job growth will improve,'' said Richard Yetsenga, currency strategist in Sydney at Deutsche Bank AG, the third-biggest trader in the daily $1.2 trillion currency market. ``That implies the Fed tightening early in the second quarter. The dollar is materially stronger'' and may rise to $1.18 per euro in the next few weeks.
The dollar rose to $1.2185 per euro at 6:43 a.m. in London compared with $1.2216 late in New York yesterday, according to EBS prices. It earlier gained to as much as $1.2148 per euro, its highest since Dec. 15. The U.S. currency was also at 110.15 yen from 110.10 after rising yesterday as high as 110.42, the strongest in almost four months. The economy added 130,000 jobs last month, the Labor Department will probably say on Friday, according to the median estimate of 63 economists surveyed by Bloomberg News.
U.S. Growth
The number of Americans filing initial unemployment claims may have declined last week to 345,000, close to a three-year low, a report tomorrow will probably say, based on the median forecast in a Bloomberg News survey of 29 economists. The Institute for Supply Management said on Monday its measure of factory employment rose to the highest since December 1987. Futures traders increased their expectations that the Fed will raise its key target interest rate by a quarter percentage point by September. The rate on the September Eurodollars futures contract rose 5 basis points to 1.5 percent in Singapore trading. Eurodollar futures settle to the three-month London interbank offered rate, or Libor, which has averaged 24 basis points more than the Fed's target rate during the past 10 years. A basis point is 0.01 percentage point.
The dollar has gained 6.1 percent against the euro since it fell to a record low of $1.2930 on Feb. 18. ``The magnitude of the dollar's move has progressed further than we expected,'' Deutsche Bank's Yetsenga said.
Yen Sales
The yen dropped against the dollar partly as Japan's record currency sales discouraged traders from betting on gains. It has fallen 4.1 percent in the past month, the biggest decline among the 16 most-traded currencies tracked by Bloomberg. Japan's currency gained 7.3 percent versus its U.S. counterpart in the past year. Zembei Mizoguchi, vice finance minister for international affairs, when asked about the dollar's gains, said ``the correction from excessive moves is continuing.''
The Bank of Japan, at the behest of the Ministry of Finance, sold 10.5 trillion yen ($95.3 billion) during the two months ended Feb. 25, more than half of the record annual amount spent last year, to protect earnings of exporters. Fed Chairman Alan Greenspan said yesterday Japan may have to scale back yen sales as its economy picks up. ``The current performance of the Japanese economy suggests that we are getting closer to the point where continued intervention at the present scale will no longer meet the monetary policy needs of Japan,'' Greenspan told the Economics Club of New York. Greenspan's message was ``that's enough'' yen selling and ``we do have to have a free market in the yen,'' said Clifford Bennett, chief strategist in Sydney at currency forecaster FxMax. General Motors Corp. Chief Executive Officer Rick Wagoner said Japan was ``absolutely propping up'' the dollar against the yen and that he would like to see the U.S. currency at 90 to 100 yen.
Demand for Assets
A slide in the Japanese currency may stall on speculation foreign investors will keep putting money into the world's second- largest economy, which expanded at an annualized 7 percent pace in the fourth quarter, the fastest since 1990. The Nikkei 225 Stock Average closed 0.1 percent below its highest since June 2002. It has gained 6.3 percent this year. Overseas investors were net buyers for six of out of seven weeks this year, according to the Ministry of Finance.
``The fundamental factors such as the strong growth and the Nikkei's gain point to the yen's further strength against the dollar,'' said Junya Tanase, a Tokyo-based currency analyst at J.P. Morgan Chase & Co., ranked the fourth-largest trader by Euromoney magazine. The bank expects the yen to rise to 105 per dollar at the end of March.
Euro-Region Growth
The euro may also weaken on speculation growth in the region's service industries, the largest part of the economy, probably slowed in February as a recovery flagged, a report today will probably show, based on the median forecast in a Bloomberg News survey. Business confidence in the nations using the euro stalled last month and French consumer confidence fell amid concern about the strength of the region's economic revival.
The euro declined to 134.24 yen from 134.50 late yesterday in New York. In other trading, the British pound fell to $1.8338 from $1.8394. The dollar gained to 1.2982 Swiss francs from 1.2961. //www.bloomberg.com