Dollar gains for 3rd day as Fed policy shift spurs demand

Options Positions

Trading in over-the-counter foreign-exchange options totaled $20.9 billion, compared with $51.4 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-yuan exchange rate was $18.6 billion, the largest share of trades at 89%. Dollar-yen options were the second most actively traded, at $1.1 billion, or 5%.

Dollar-yuan options trading was 570% more than the average for the past five Fridays at a similar time in the day. U.S. dollar-yen options trading was 88% less than average.

The JPMorgan EMBI Global Index of developing-nation dollar bonds has slipped 4.3% this week, poised for the worst returns since October 2008. The Standard & Poor’s GSCI index of 24 commodities gained fell 1% after dropping 3.1% yesterday. Treasury 10-year yields climbed to the highest level since August 2011, touching 2.5%.

“The key takeaway this week is the fact that we’ve got bond yields” rising, Nick Bennenbroek, head of currency strategy at Wells Fargo & Co., said in an interview on Bloomberg Television’s “Surveillance” with Sara Eisen. “It looks like they’re essentially here to stay and that’s putting the recovery of those commodity and emerging currencies very much at risk.”

Economic Data

The U.S. Commerce Department will say on June 25 that durable-goods orders rose 3% in May, expanding for a second month, according to a Bloomberg News survey of economists. An industry report the same day will show the S&P/Case-Shiller index of property values gained 10.6% in April from a year earlier, according to another survey.

“For the remainder of the year we think the dollar will rally, pretty much across the board,” said Alvin Tan, a director of foreign-exchange strategy at Societe Generale SA in London. “The Fed is becoming more hawkish relative to other central banks and the Bank of Japan is just starting on its massive quantitative-easing program. Monetary-policy divergence will drive the dollar ahead.”

The yen has fallen 2.3% this week against the euro, poised for the biggest slide since the period ended April 5, the same week the Bank of Japan said it will buy more than 7 trillion yen ($71 billion) of bonds every month.

The JPMorgan Global FX Volatility Index was at 11.42% after touching 11.51%, matching yesterday’s advance to the highest since June 2012. The average in the past year is 8.66%.

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