Bloomberg: Dollar Posts its First Three-Month Gain Versus the Euro, Yen Since 2002

Nov. 30 (Bloomberg) — The dollar posted its first three-
month gain against the euro and yen in almost four years as the
U.S. economy expands faster than Europe and Japan and the Federal
Reserve keeps raising interest rates.

The U.S. currency is also poised for the first annual

advance since 2001 as the Fed’s target rate exceeds the
benchmarks of the European Central Bank and the Bank of Japan.
The euro failed to rise even as economists expect the ECB to lift
borrowing costs tomorrow for the first time in five years.

“Interest-rate differentials favor the dollar across the
board,” said Ryan Schiff, global head of foreign exchange at
Fimat Group in Chicago, whose company trades about $2 billion in
currencies daily. “It makes sense to be long dollars.”

Against the yen, the dollar was at 119.82 at 4 p.m. in New
York, from 119.68 late yesterday, according to foreign-exchange
dealing system EBS. It was at $1.1790 per euro, from $1.1779.

The U.S. currency has climbed 1.7 percent against the euro
and 2.9 percent versus the yen this month, taking its three-month
advance against its European and Japanese counterparts to 4.7
percent and 8.3 percent, respectively. The dollar hasn’t gained
against both currencies for three straight months since January
2002, according to data compiled by Bloomberg.

U.S. Economy

U.S. economic growth rose at a 4.3 percent annual rate from
July through September, the quickest since the first quarter of
last year, the Commerce Department said in a report today. The
revised figure for gross domestic product was higher than
forecast and compares with a 3.8 percent pace initially
estimated. Growth was 3.3 percent in the prior three months.

Manufacturing in the Chicago area expanded for a third month
in November, the National Association of Purchasing Management-
Chicago said today. The group’s Business Barometer, which is
based on a survey of executives in the region, fell to 61.7 from
62.9 in October. A figure higher than 50 signals growth. The
price index rose to 94.1 from 79.6.

Traders have boosted bets the Fed will lift its 4 percent
rate three more times. The yield on federal fund futures for
April delivery yesterday rose 5 basis points, or 0.05 percentage
point, at the Chicago Board of Trade, to 4.64 percent. It was
unchanged today. The jump signals a 56 percent chance of an
increase to 4.75 percent by April, up from 36 percent.

Today’s reports point to “a pretty robust picture for the
U.S. economy and argues for the Fed to continue hiking beyond 4.5
percent,” said Richard Franulovich, a New York-based currency
strategist at Westpac Banking Corp. “It’s all good news for the
dollar.”

ECB Rates

Further gains for the dollar may be limited as the ECB is
poised to raise rates for the first time in five years tomorrow.
Bank of Japan Deputy Governor Kazusama Iwata said today consumer
prices will show “firm gains” in the first quarter.

“Core prices will show considerably firm gains in the
January-March period,” Iwata said in a speech with business
executives in Kagoshima City in southern Japan.

Japan’s central bank has held rates near zero since 2001 as
it tries to halt a seven-year decline in prices and said it will
keep them there until core consumer prices end their slide. Prime
Minister Junichiro Koizumi on Nov. 14 said it was “too early”
for the central bank to change its monetary policy.

“Iwata reinforced the view the BOJ will end its so-called
quantitative easing in the second quarter of next year,
regardless of political pressure,” said Tomoko Fujii, a currency
strategist at Bank of America N.A. in Tokyo. “This should be
potentially yen positive in the long term.”

All except one of the 57 economists surveyed by Bloomberg
predict the ECB will lift rates to 2.25 percent tomorrow from 2
percent. Policy makers will probably limit increases next year to
a further 50 basis points, Market News reported yesterday, citing
officials it didn’t name at the Frankfurt-based central bank.

European Expansion

The ECB raised its 2006 inflation and growth forecasts, a
person familiar with the matter said today. The bank now expects
inflation to average 2.1 percent in 2006 and 2007, and forecasts
the economy will expand 1.9 percent next year. That compares with
the central bank’s Sept. 1 forecasts for inflation of 1.9 percent
in 2006 and growth of 1.8 percent.

“People are treading very carefully ahead of the ECB,”
said Kathy Lien, chief currency strategist in New York at Forex
Capital Markets LLC. “The rate hike itself is practically
guaranteed, but we don’t know” what ECB President Jean-Claude
Trichet will say next about whether they will be raising rates
again, she said.

European Union reports today showed Europe’s 12-nation
economy expanded at the fastest pace since March 2004 in the
third quarter while inflation exceeded the ECB’s 2 percent target
for a 10th month in November.

Gross domestic product gained 0.6 percent in the third
quarter following a 0.3 percent increase in the three months
through June, Luxembourg-based Eurostat reported. Consumer prices
rose 2.4 percent from a year earlier after climbing 2.5 percent
in October, a separate report showed.

A U.S. Labor Department report Dec. 2 will show the economy
created 210,000 jobs in November compared with October’s 56,000,
according to the median estimate of 67 economists in a Bloomberg
survey. Unemployment held at 5 percent, close to a four-year low
of 4.9 percent reached in August, a separate survey indicated.