After a Summer Stall, the Dollar Bull-Run is Back
The U.S. dollar looks set to shake off its summer lull as the factors for a renewed rise appear to be firmly in place.
Upbeat economic data, rising Treasury yields and Federal Reserve tapering expectations have boosted sentiment on the greenback, which hit a six-week high around 100.20 yen Friday, and held close to a seven-week peak hit against the euro Thursday following dovish comments from the European Central Bank.
A rise in 10-year Treasury yields to 3 percent Thursday, their highest level since July 2011, following stronger-than-expected economic data has refocused attention on the U.S. currency.
"We had a temporary pause in July when bond yields pulled back and the dollar paused, but now we're near that 3 percent level and there's renewed focus on payrolls and the Fed meeting this month, so for sure we're going to see another bout of dollar strength," Nick Bennenbroek, head of currency strategy at Wells Fargo (WFC), told CNBC Asia's "Squawk Box" on Friday.
The euro hovered around $1.3124 on Friday, within sight of Thursday's seven-week low at $1.3109 and down about 2.4 percent from a six-month peak hit last month.
Among the upbeat economic data lending to positive dollar sentiment, Thursday's survey from the Institute for Supply Management showed services industries in August posted their fastest growth since December 2005, exceeding market expectations.
Meanwhile, news that weekly jobless claims declined to a near five-year low has lifted expectations for a stronger-than-expected non-farm payrolls report on Friday.
Strong jobs data could cement expectations that the Fed will start to unwind its monetary stimulus when it meets later in September -- a backdrop that is seen as favorable to the U.S. dollar at a time when central bank stimulus measures are putting pressure on other major currencies.
Economists polled by Reuters forecast 180,000 new jobs were created in August compared with 162,000 in July. They expect the unemployment rate to remain unchanged at 7.4 percent.
Kathy Lien, managing director at BK Asset Management, said that for the dollar to push decisively above 100 yen, Friday's payrolls number needs to come in above 200,000.
Dowd anticipates a push up in the dollar as Fed tapering expectations and the rise in U.S. government bond yields has boosted the greenback's appeal.
"The back-up in yields has been pretty significant, 130 basis point rise since May in 10-year yields, so there is money coming back into the States to take advantage of the yield play," he said.
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