Dollar Highest in Almost Nine Months vs. Euro

The dollar strengthened to an almost nine-month high against the euro after European Central Bank (ECB) President Mario Draghi signaled monetary policy will diverge from the U.S. for an extended period of time.

The U.S. currency rose against the majority of its 16 main peers as unemployment claims dropped, pushing the average over the past month to an eight-year low. Russia's ruble declined to a three-month low as political tension in Ukraine deepened. Australia's dollar fell by the most in a month against its U.S. counterpart as traders revived bets the nation's central bank will cut interest rates after unemployment jumped.

“He's mentioned a few times the divergence in monetary policies—in a way, he's trying to send the euro lower, he just wants to remind the market [that] fundamentals are not supporting the euro,” Charles St-Arnaud, London-based senior economist at Nomura Securities International Inc., said of Draghi. “The initial jobless claims numbers were excellent. They're back to pre-crisis levels.”

The dollar advanced 0.2 percent to $1.3354 per euro at 10:55 a.m. New York time after touching $1.3333 yesterday, the strongest since Nov. 8. The euro fell 0.1 percent to 136.50 yen. Japan's currency weakened 0.1 percent to 102.22 per dollar.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 developed-market peers, rose 0.2 percent to 1,022.30 after gaining to 1,024.67 yesterday, the highest since Feb. 13.

St-Arnaud recommends investors buy the dollar against the euro, Aussie, and New Zealand dollar.

Aussie, Yuan

The Aussie dropped the most among the dollar's 31 main peers as that nation's jobless rate jumped to 6.4 percent last month from 6 percent in June, the statistics bureau said. The number of people employed fell by 300, compared with the forecast for an increase of 13,200 in a Bloomberg News survey.

Australia's dollar slid 0.9 percent to 92.74 U.S. cents after losing 1 percent, the biggest decline since July 3. It earlier touched 92.59 cents, the lowest since June 5.

China's yuan strengthened for a fourth day as economists predicted tomorrow's government report will show exports climbed 7 percent from a year earlier in July, compared with 7.2 percent in June. The trade balance will be in surplus for the fifth month, another survey showed. The yuan yesterday rose beyond the central bank's fixing for the first time since its trading band was doubled to 2 percent on March 17.

The currency climbed 0.02 percent to close at 6.1619 per dollar, China Foreign Exchange Trade System prices show. It touched 6.1561 earlier, the strongest level since March 17. The closing level was 0.08 percent stronger than today's reference rate of 6.1670, according to data compiled by Bloomberg.

The euro weakened as Draghi said the risks to the economic recovery in the region are increasing from the conflict in Ukraine and from recent economic data that have been disappointing.

“Heightened geopolitical risks, as well as developments in emerging-market economies and global financial markets, may have the potential to affect economic conditions negatively,” Draghi said at a press conference in Frankfurt today after the ECB kept its main interest rates unchanged. “We are strongly determined to safeguard the firm anchoring of inflation expectations over the medium to long term.”

Italy, Russia

Headwinds facing the recovery in the 18-nation euro area are intensifying, after Italy slipped back into recession and the standoff between Russia and the U.S. and its allies escalated. Draghi has in the past said an external shock to the economy that endangers the inflation outlook could be a trigger for broad-based asset purchases, or quantitative easing.

In the U.S., the Federal Reserve is on pace to end its unprecedented bond buying in October, with the first interest-rate increase since 2006 expected by July, based on futures contracts.

The ECB policy meeting came against the backdrop of mounting political crisis. Russia has massed troops along its border with Ukraine, and President Vladimir Putin retaliated yesterday against European Union and U.S. sanctions by ordering restrictions on food imports.

The ruble fell for a sixth day against the central bank's target basket of dollars and euros, sliding 0.2 percent to 41.7731 and touching 41.9409, lowest since May 6.

The dollar gained as jobless claims decreased by 14,000 to 289,000 in the week ended Aug. 2, from 303,000 in the prior period, a Labor Department report showed today in Washington. The median forecast of 47 economists surveyed by Bloomberg called for an increase to 304,000.

The Aussie has gained 5.6 percent this year, the most among 10 developed-nation currencies tracked by Bloomberg Correlation- Weighted Indexes, as the nation's benchmark rate of 2.5 percent attracts investors. The yen added 4.3 percent, the U.S. dollar rose 1.1 percent and the euro fell 2.2 percent.

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