Currency traders are gearing up for one of the busiest weeks of the year. The European Central Bank is forecast to boost monetary stimulus, the Federal Reserve gets its last chance to scrutinize US payroll data before its Dec. 15-16 meeting, and Fed Chair Janet Yellen appears before Congress. Those events may prove crucial for determining the path of the dollar, which is poised for its best month since July, Bloomberg reported.
Investors are increasingly questioning how much further the US currency can strengthen after appreciating almost 10% this year. The Bloomberg Dollar Spot Index is trading near its highest in data going back to December 2004, while Societe Generale SA’s Kit Juckes wrote in a client note on Friday that the currency is overvalued by some measures. At the same time, futures show traders continue to pile on dollar wagers amid speculation that the Fed will raise rates next month.
“It’s all going to come down to next week,” Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said from Toronto. “There’s really a mishmash of event risks to watch for.”
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 peers, added 0.5% this week. The measure is set to rise 2.3% this month. The US currency rose for a second week versus the euro, adding 0.5% to $1.0593 per euro. The dollar was little changed at 122.85 yen. European policy makers meet Dec. 3 to discuss monetary policy and what the ECB can do to prop up sluggish inflation within the region. The central bank is considering cutting its deposit rate further below zero and adding to its program of quantitative easing.
That contrasts with the US, where officials are edging closer to a rate increase as early as December. Yellen is scheduled to address the Economic Club of Washington on Dec. 2 and appear before a congressional committee on Dec. 3, a day before November jobs data are released.
