US dollar extends jump on interest rate outlook

(Bloomberg) - The US dollar extended gains, reaching a three-month high versus the yen amid mounting speculation US interest rate increases will be brought forward.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major peers, rose 0.2 per cent by 10.01am in Tokyo, climbing for a fifth day as the yen slipped to its weakest level since Dec 8 and currencies from New Zealand to Malaysia retreated.

The Bloomberg dollar gauge is at a decade high after better-than-expected US job data saw traders bolster bets on a September rate rise. Federal Reserve Bank of Dallas President Richard Fisher said Monday that delaying higher borrowing costs risked pushing the US into recession.

China reports on consumer and producer prices Tuesday, the first in a slew of data this week that will give investors more clues as to how the slowdown in the world's second-largest economy is panning out.

Chinese lawmakers set a 2015 economic growth target of about 7 per cent last week, the lowest goal in at least 15 years. The central bank has cut interest rates twice since November in a bid to preserve expansion, which has come down from more than 10 per cent before the global financial crisis. The CPI probably rose 1 per cent from a year earlier in February, according to economists surveyed by Bloomberg, while producer prices are projected to have remained in deflationary territory.

The S&P 500 slid 1.6 per cent last week, the most since January, while the dollar index soared 2.3 per cent as data showed the US jobless rate had fallen within a range the central bank considers full employment. The odds of a US rate increase by September have jumped to 59 per cent, from 49 per cent on Thursday, futures showed. Federal Reserve policy makers next meet March 17-18. The S&P 500 and the Dow Jones Industrial Average rose at least 0.4 per cent on Monday.

"Every time the Fed has tightened policy after achieving full employment, it has driven the economy into recession," Mr Fisher said at Rice University in Houston Monday. Unemployment is "likely to reach the bottom of the range of natural-rate estimates" by the summer of 2015, he said.

The yen dropped as much as 0.4 per cent to 121.62 per dollar, declining for a fourth day, its longest slump since the end of December. The South Korean won weakened the most among 16 major currencies, sliding 0.5 per cent, followed by the Australian and New Zealand dollars, down 0.4 per cent. The Malaysian ringgit sank to its weakest level since March 2009.

The euro lost 0.3 per cent to US$1.0825, close to its weakest level since September 2003. The European Central Bank started buying debt as part of its quantitative easing programme Monday, while Greece prepared to resume talks with its creditors this week. Euro-area officials are pressuring the debt-saddled nation to open its books and follow through on commitments agreed to in its rescue package.