DESPITE TURBULENCE, CURRENCY TRADERS STICK WITH STRONG DOLLAR THESIS / THE WALL STREET JOURNAL

June 9, 2015, 1:03 PM ET

Despite Turbulence, Currency Traders Stick With Strong-Dollar Thesis

ByJames Ramage

Bloomberg News

Traders aren’t thrilled with the choppiness in the currency markets these days.

But as long as the moves don’t pull them underwater on their positions, traders aren’t likely to abandon their expectations of a stronger dollar, said Richard Cochinos, head of Americas developed market currencies strategy at Citigroup Inc.

The dollar’s recent moves against rivals have been relatively large. The dollar rose 1.1% against the euro on Friday, as stronger jobs numbers persuaded investors that the Federal Reserve would be more likely to raise short-term interest rates as soon as its September policy meeting.

But on Monday, the euro soared 1.6% versus the dollar as investors reversed course and booked profits on the greenback’s gains.

The dollar made similar outsized moves against the yen over the two-day period.

Still, most investors believe that the Fed will raise interest rates before the end of the year, and well before the Bank of Japan and the European Central Bank do. Higher borrowing costs make the dollar more attractive, as they boost returns on assets denominated in the U.S. currency.

But analysts said U.S. economic data must improve before the Fed will be confident enough to raise rates and set the dollar on an upward track. The U.S. economy shrank 0.7% over the first three months of the year, and consumer demand has barely budged. Through April, data for inflation and wage growth have risen slowly, even as numbers for business investment, home sales and consumer confidence have made noticeable gains.

The uneven picture has shaken investors’ faith in a stronger U.S. economy and has prompted them to carve a rollercoaster path for the greenback since mid-March.

“We’re in broad range-bound markets. That dominates the psychology of day-to-day trading. There’s more forgiveness for drift in price action,” Mr. Cochinos said. Friday’s post-jobs bounce showed “the desire to buy dollars is there so long as U.S. data remain strong,” he said.

That means that even though traders are willing to stomach the turbulence, they’re also really hoping that May U.S. retail sales — to be released Thursday — add more meat to the strong-dollar story.