The dollar (NYBOT:DX) strengthened the most in a month as jobs gains that exceeded analyst estimates boosted speculation the Federal Reserve will bring forward the timing of interest-rate increases.
The U.S. currency rose against all but one of its 16 major peers as the prospect of higher borrowing costs set the U.S. apart from other nations that are adding to currency-debasing stimulus measures to boost growth. The krona plunged after a larger-than-expected cut in Swedish interest rates, Australia’s dollar tumbled as the Reserve Bank Governor said it was “overvalued,” and the euro fell after European Central Bank President Mario Draghi reiterated that he’ll keep rates low.
“These kind of numbers are the ones that have to get some attention even at the Fed,” said Robert Sinche, a global strategist at Stamford, Connecticut-based brokerage Pierpont Securities LLC. “It’s a well-deserved increase in the dollar although I think there’s a lot more to go.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, rose 0.3 percent to 1,008.34 at 10:01 a.m. New York time, the biggest advance since June 2. The greenback strengthened 0.4 percent to 102.22 yen. Europe’s 18- nation shared currency declined 0.4 percent to $1.3606.
U.S. employers added 288,000 workers in June, more than the 215,000 median forecast of 94 economists surveyed by Bloomberg. The unemployment rate dropped to an almost six-year low of 6.1 percent, from 6.3 percent.
“The number is much stronger than expected, very encouraging,” said Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York. The dollar is likely “to rise across the board,” he said.
Treasuries declined after the jobs data, a sign traders were adding to bets on higher borrowing costs. The two-year yield rose four basis points to 0.52 percent, the highest rate since May 2011. The rate was 49 basis points higher than its German equivalent, the biggest premium since 2007.
The U.S. central bank has trimmed monthly buying to $35 billion from $85 billion last year, while holding the key borrowing rate at zero to 0.25 percent, where it’s been since 2008.
Initial jobless claims rose to 315,000 in the period ended June 28, the Labor Department reported today. The median forecast of 48 economists surveyed by Bloomberg called for 313,000 claims.
The risk of higher U.S. interest rates contrasts with Sweden’s steps to help boost inflation and currency-debasing policies around the world as officials grapple with anemic global growth. The ECB introduced a package of measures to ward off the threat of deflation in the euro area last month and the Norwegian krone had its biggest drop in almost a year on June 19 after its central bank said it may have to cut interest rates.
Sweden’s central bank lowered its benchmark rate by 0.5 percentage point to 0.25 percent today, after analysts had forecast a 0.25 percentage-point reduction. It also predicted no increases in borrowing costs until the end of next year.
“If you deviate a lot from global monetary policy and try to run your own independent monetary policy, you run the risk of a stronger currency,” said Carl Hammer, chief foreign-exchange strategist at SEB AB in Stockholm. The Riksbank wants “to engineer a weaker currency,” he said. “This was massively more dovish than what most people in the market expected.”
The krona slid 1.6 percent to 9.3081 per euro, its biggest decline since November 2013. Sweden’s currency touched 9.3887, the weakest level in almost three years. The krona dropped 2 percent to 6.8389 per dollar.
The Aussie fell 1.1 percent to 93.38 U.S. cents, the biggest drop this year. It’s falling after a rally took it to 95.05 on July 1, the strongest level since Nov. 7.
Investors are under estimating the probability of a “significant fall” in the Australian dollar at some point, RBA Governor Glenn Stevens said. “Most measurements would say it is overvalued, and not just by a few cents,” he said in the text of a speech delivered in Hobart today. Policy makers on July 1 held the interest rate unchanged at a record-low 2.5 percent where it’s been since August.
The ECB kept the main refinancing rate at 0.15 percent today after a cut last month, as predicted by all 54 analysts in a Bloomberg survey.
The central bank is trying to stop inflation falling too low in an economy still struggling to recover from a debt crisis that threatened to blow apart the currency bloc.
Foreign-exchange volatility subsided, with JPMorgan Chase & Co.’s gauge tracking Group of Seven nations dropping to 5.21 percent today, the lowest on record on a closing-market basis.