Dollar surges anew, euro zone data eyed

[September 29, 2014]  By Patrick Graham

LONDON (Reuters) - The dollar traded just off multi-year highs against the yen, euro and a basket of currencies on Monday, as a three-month-old rally showed no signs of dissipating before a week of important economic set pieces.

The week's big release in the United States is non-farm payrolls on Friday, but a raft of other data comes before that. They should drive home the message sent by gross domestic product numbers last week of an increasingly robust recovery.

By contrast, euro zone data showed economic sentiment deteriorated in September to levels last seen in late 2013, underlining a divergence in fortunes that has driven the euro more than 9 percent lower since May.

The biggest mover among developed-world currencies was the New Zealand dollar. Figures showed the country's central bank intervened heavily against its currency in August.

That, and weekend protests in Hong Kong, added to the sense of a more turbulent period ahead for markets as the U.S. Federal Reserve brings an end to a program of bond-buying that has pumped trillions of dollars into the global economy.

"I do wonder if there's a bit of risk aversion sliding into the dollar rally now," said Adam Myers, European head of FX strategy with Credit Agricole in London.
 

"If we do see a bit of a back-up in performance in emerging markets, then we may see people moving towards buying dollars as a safe haven on top of the strength we have seen."

The kiwi was some 1.3 percent lower at $0.7768. The yen was another quarter point lower at 109.55, just off a new six-year high for the dollar of 109.75 yen.

Asian market attention turned to Hong Kong, where democracy protesters defied volleys of tear gas and police baton charges in the financial center.

Hong Kong's de facto central bank said the Hong Kong dollar was stable after falling to a six-month low. Pegged to the U.S. dollar, it was last down about 0.1 percent at 7.7649.

INFLATION

Data released by the Commodity Futures Trading Commission on Friday showed speculators increased their bullish bets on the U.S. dollar in the week ending Sept. 23. The value of the dollar's net long position rose to $35.81 billion from $31.42 billion the previous week.
 

"There is definitely the feeling that the dollar is moving towards overbought territory," Myers said. "If we get a weak payrolls number at the end of the week, we may well see a decent correction next week."

Economists expect the payrolls report will show U.S. employers hired 219,000 people in September, a rebound from August's rise of only 142,000.

The essence of the dollar's rise since July has been the divergence of the U.S. economy's direction from those of Europe and Japan. The Fed is beginning to rein in years of loose monetary policy; the Bank of Japan and the European Central Bank are under pressure to do more for growth.

One question is whether the Fed will be as happy tightening interest rates next year if the dollar continues to gain so quickly. Some banks predict a fall for the euro to parity or close to parity with the dollar over the next couple of years,

"I don't think it's too strong to call what we have now currency wars," said Simon Derrick, head of currency research at Bank of New York Mellon in London.

"The U.S. was very effective after 2008 in talking down the dollar and (ECB chief) Mario Draghi has done exactly that in the past few months. The question is will the Fed be happy about it if the euro keeps falling."

(Editing by Larry King)

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