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Dollar Rises to 2-Week High Versus Euro Before GDP; Rupee Jumps - (Bloomberg)

Posted by Chris Advincula on Aug 29, 2013 7:27:00 AM

The dollar strengthened to a two-week high against the euro before a U.S. report that analysts said will show economic growth accelerated, backing the case for the Federal Reserve to reduce stimulus.

The U.S. currency advanced for a second day versus the yen as benchmark Treasury yields climbed toward the highest level in two years. The euro weakened against most of its major counterparts after German unemployment unexpectedly increased in August. India’s rupee surged the most since 2009 after the central bank said it will sell dollars to the nation’s biggest oil importers to cool demand for foreign exchange.

“The argument for Fed tapering is still in place for September,” said Marcus Hettinger, a strategist at Credit Suisse Group AG in Zurich. “The last couple of days have been dominated more by geopolitical concerns and the economic story has gone a bit in the background. If this reverts a little bit, that provides the dollar with interest-rate support.”

The dollar rose 0.6 percent to $1.3267 per euro as of 10:52 a.m. London time after appreciating to $1.3254, the strongest level since Aug. 15. The U.S. currency gained 0.5 percent to 98.14 yen after advancing 0.6 percent yesterday. The yen was little changed at 130.19 per euro.

Treasury 10-year yields rose two basis points, or 0.02 percentage point, today to 2.78 percent after reaching 2.93 percent on Aug. 22, the highest since July 2011. They dropped on the first two days of this week as political tensions in Syria spurred demand for safer assets.

‘Squeezing Up’

“The fact that U.S. yields are squeezing up again is reasonably significant and we are coming back to the assumption that the data is a little more relevant,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “That’s providing some impetus for the dollar.”

The dollar has advanced 5.4 percent this year, the second-best performer after the euro of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The common currency 6.1 percent, while the yen tumbled 8 percent.

U.S. gross domestic product rose at a 2.2 percent annual rate last quarter, compared with the initial reading of 1.7 percent released on July 31 and 1.1 percent in the previous three months, according to a Bloomberg survey before the Commerce Department report. Economists predict separate data today will show initial jobless claims fell last week.

Fed Purchases

Fed policy makers are debating whether the economy is strong enough to enable them to reduce monthly purchases of $85 billion in Treasuries and mortgage debt. Officials will cut the amount at their next meeting on Sept. 17-18, according to 65 percent of economists in an Aug. 9-13 Bloomberg survey.

U.K. Prime Minister David Cameron backed down from asking lawmakers for immediate support today for a strike against Syria as the Labour opposition demanded a delay until United Nations inspectors report on the alleged use of chemical weapons.

“Threat of military action in Syria led to a classic risk-off move,” ABN Amro Group NV strategists Georgette Boele and Peter de Bruin in Amsterdam wrote in a note to clients today. “But it already seems to be losing steam, and is likely to prove short lived.”

The euro dropped versus all except three of its 16 major counterparts after the Nuremberg-based Federal Labor Agency said the number of Germans out of work increased by a seasonally adjusted 7,000 to 2.95 million.

Economists predicted a decline by 5,000, according to the median of 25 estimates in a Bloomberg News survey.

Rupee Rallies

The rupee halted a three-day slide after the Reserve Bank of India said it will provide foreign currency to state-run Indian Oil Corp., Bharat Petroleum Corp. and Hindustan Petroleum Corp., which the central bank will later repurchase.

The currency slumped the most in 20 years yesterday on concern a surge in oil prices amid political tension over Syria would worsen India’s current account and push the economy toward its biggest crisis since 1991.

The rupee strengthened 2.1 percent to 67.425 per dollar, the biggest advance since May 18, 2009. The currency has still tumbled 17 percent in the past three months and depreciated to a record 68.845 yesterday

South Korean won climbed to a three-week high against the dollar after Finance Minister Hyun Oh Seok said a widening current-account surplus would buoy the currency.

The currency jumped 0.5 percent to close at 1,109.80 per dollar in Seoul after appreciating to 1,108.66, the strongest since Aug. 9. 

 

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