Futures Traders Bet on Dollar Gain

Futures traders are betting for the first time since December 2005 that the dollar will gain against the euro.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain, known as net shorts, was 21,315 on April 29, compared with net longs of 18,907 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.

“The dollar has already turned against the euro,” said Benedikt Germanier, a currency strategist at UBS AG in Stamford, Connecticut. “The dollar will go to $1.52 in a straight line.”

The dollar increased 0.3 percent to $1.5424 per euro at 5 p.m. in New York, from $1.5474 yesterday. It touched $1.5361, the highest level since March 24.

The dollar rose 1.3 percent against the euro this week, its biggest rally since March, and has appreciated 3.6 percent from a record low of $1.6019 reached on April 22. It’s the first time the dollar has posted two weeks of gains since December.

The yield advantage of two-year German bonds over comparable-maturity Treasuries has decreased to 1.40 percentage points from 1.85 percentage points on March 31, making dollar- denominated assets more attractive to investors as shown on the below graph:

                      

The U.S. Dollar Index, which measures the currency against six major counterparts, touched 73.698, the highest level since March 5. The index fell to 70.698 on March 17, the lowest level since its 1973 inception:

                      

 

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Gold Ends Higher After 4-Month Low

Gold ended higher on Friday, recovering from an initial four-month low, with analysts expecting future volatility to be driven by gyrations in the greenback and possible fund sales.

Spot gold fell as low as $845 an ounce after the dollar jumped following better-than-expected U.S. jobs data, but the metal rebounded when the price dipped below $850 an ounce and attracted fresh buyers.

A firmer dollar makes gold costlier for holders of other currencies and often lowers bullion demand. The metal is also generally seen as a hedge against oil-led inflation.

 

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FOREX-Dollar Surges Broadly with US Data

The dollar scaled two-month highs against the yen and a basket of currencies on Friday after an unexpectedly small drop in U.S. Non-Farm payrolls left investors hoping any U.S. recession would prove a shallow one.

News that the struggling economy shed only 20,000 jobs in April also supported views that the Federal Reserve would refrain from cutting interest rates again, provided economic data and financial markets did not deteriorate further.

Fed rate cuts totaling 3.25 percentage points since mid-September have eroded the allure of dollar-denominated assets to investors seeking higher returns, undermining the greenback against the high-yielding euro and Australian and New Zealand dollars.

Since a while, we could consider that the economic situation in the U.S. is not worsening or getting better. But we could expect at least a long period of weakness.

The dollar surged to a two-month peak of JPY105.69, and has gained nearly 1 percent against the Japanese currency on the week. It was last up 0.9 percent at 105.40 with a high at 105.68.

The New York Board of Trade’s dollar index, which charts the dollar’s performance against a basket of six currencies, climbed to two-month peaks at 73.698 DXY. It was last around 73.534, on track for it’s third straight weekly gain.

Labor Department data showed U.S. employers cut 20,000 jobs in April, marking the fourth straight month of contraction unemployment. Economists were expecting 75K. 

The unemployment rate also eased to 5.0 percent from 5.1 percent in March.

With economic data continuing to beat market expectations, analysts said it was becoming more likely that the Fed would keep its key overnight lending rate at 2 percent for a while.

This would support the dollar against the euro, especially as perceptions rise that the European Central Bank will be forced to ease monetary policy at some point this year amid increasing signs of slower growth in the euro zone.

The Euro fell to 1.5359, the lowest level since March 24, according to Thomson Reuters data. It traded back up at 1.5425 at midday, down 0.3 percent on the day to close at 1.5410.

For the week, the euro has lost 1.3 percent against the dollar, declining for a second straight week.

The dollar rose to a nine-week high against the Swiss franc to 1.0606 before edging back down to 1.0562 francs. It was on track for its largest weekly gain since December.

The dollar was also mildly supported by an unexpected rise in U.S. factory orders for March and news about the injection of additional liquidity by major central banks to stabilize credit markets.

The Fed said it would step up the amounts offered in some cash auctions to financial institutions, while the European Central Bank and Swiss National Bank will boost their auctions of dollar funds by European banks.

 

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