Dollar gains on tapering outlook, Bernanke testimony

Data-Dependent

Bernanke told U.S. lawmakers yesterday that if the economy improved faster than expected, and inflation rose back “decisively” toward the central bank’s 2% target, “the pace of asset purchases could be reduced somewhat more quickly.” The Fed would also be prepared to increase the pace of its bond purchases -- currently at $85 billion a month -- “for a time, to promote a return to maximum employment in a context of price stability,” he said.

U.S. jobless claims dropped by 24,000 to 334,000 in the week ended July 13, the fewest since early May, from a revised 358,000 the prior period, Labor Department figures showed today in Washington. The median forecast of 49 economists surveyed by Bloomberg projected 345,000. The recent swings reflect the difficulty in adjusting the data for the timing of annual retooling shutdowns at automakers, a spokesman said.

The number of people continuing to receive jobless benefits climbed by 91,000 to 3.11 million in the week ended July 6, the most in five months.

‘Well Bid’

“The dollar is generally very well bid,” said Adam Cole, head of Group-of-10 currency strategy at Royal Bank of Canada in London. “The market expectation that the tapering announcement will come in September still looks sensible and nothing Bernanke said yesterday changed that.”

Investors may need to wait to benefit from betting on a stronger dollar, according to Jeremy Stretch, head of currency strategy in London at Canadian Imperial Bank of Commerce, the fifth-most accurate currency forecaster in a Bloomberg Rankings survey for the second quarter.

“It will be the case that over the next two or three months we may continue to oscillate within ranges,” Stretch said in an interview on Bloomberg Television’s “The Pulse” with Guy Johnson. “As we go toward the end of this quarter or beginning of next quarter, as we do get into better data or the prospect of a degree of tapering, that’s the time we’ll see the dollar gaining additional traction.”

The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.3% to 1,035 after increasing 0.2% yesterday.

G-20 Meeting

The yen weakened for the fourth time in five days against the greenback after Russian Deputy Finance Minister Sergei Storchak said the G-20 probably won’t call for a tapering of stimulus in nations including Japan.

The BOJ doubled monthly bond purchases to more than 7 trillion yen in April after Prime Minister Shinzo Abe urged the central bank to take steps to overcome deflation. Polls have shown Abe’s Liberal Democratic Party and coalition partners are likely to win a majority in the upper house election this weekend, ending a split parliament.

Japan’s currency lost 22% in the past year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Abe and BOJ Governor Haruhiko Kuroda pursued a policy of monetary accommodation to boost the Japanese economy. The euro strengthened 8.8% and the dollar gained 1.4%.

The euro touched a seven-week high versus the yen as Greek lawmakers passed a bill that puts thousands of state workers on notice for possible dismissal, a victory for Prime Minister Antonis Samaras that clears the way for the country’s next bailout installment.

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