Currencies: Dollar index sees strongest quarter since 2008

NEW YORK (MarketWatch) —The U.S. dollar is on track for its strongest quarterly performance since 2008, gaining ground on the euro but losing some versus the Japanese yen.

The ICE U.S. dollar index DXY, +0.47%  , a measure of the U.S. unit against a basket of six major rivals, traded at 98.435 in recent action, up from 97.980 in North American trade late Monday. The index has seen a quarterly gain of 9%, its strongest since a 9.6% rise in the third quarter of 2008, according to FactSet.

The dollar has risen in large part due to expectations for diverging monetary policy, with the U.S. Federal Reserve seen preparing to raise interest rates later this year as the European Central Bank, Bank of Japan and several other central banks continue to loosen policy.

“The performance of the U.S. dollar seems to remain key across financial markets as the greenback strength once again starts to show through,” said Richard Perry, strategist at Hantec Markets, in a note. “Key markets such as the euro and gold are beginning to show renewed dollar strength after the unwinding correction in the wake of the [Federal Reserve policy] meeting” in mid-March.

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Richmond Federal Reserve Bank President Jeffrey Lacker, a voting member this year of the rate-setting Federal Open Market Committee, on Tuesday said that unless incoming economic reports disappoint, “the case for raising rates will remain strong at the June meeting. Lacker has been one of the most hawkish members of the FOMC.

The dollar was virtually unchanged versus the Japanese yen in choppy trade Tuesday, but muted performance versus the currency during the quarter has been attributed in part to seasonal repatriation of profits by Japanese firms at the end of the country’s fiscal year.

The dollar USDJPY, -0.05%  traded at 120.08 yen. Earlier, the dollar had risen to a two-week high at ¥120.37. The dollar saw a 0.3% quarterly rise versus the Japanese currency.

“Investors don’t seem willing to make major moves, but they don’t want to sell the dollar much either,” says Marito Ueda, director at FX Prime byGMO. The fact the dollar hasn’t weakened against the yen may indicate the firmness of underlying demand, he added.

The ¥122-line has proved to be the recent sticking point for the USD/JPY, a mark the pair will need to cross first if it is to mount a challenge on ¥124.14, its high set on June 2007, Ueda said.

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The six-year bull market may have a long way to run, according to some strategists. WSJ’s Kristen Scholer explains on MoneyBeat.

In other currency trade pairs, the euro EURUSD, +0.07%  was at $1.0738 down from $1.0832, falling more than 11% versus the dollar over the course of the quarter. Against the yen, the shared currency EURJPY, +0.02%  traded at ¥128.92, down from ¥129.86.

The WSJ Dollar Index BUXX, -0.06% another measure of the dollar against a basket of major currencies, was little changed at 87.91.

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