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By Bloomberg

The dollar extended gains against the yen after the four-week average of U.S. jobless claims dropped to the lowest in 14 years.

The greenback strengthened earlier as Jeffrey Gundlach at DoubleLine Capital LP and Scott Mather of Pacific Investment Management Co., two of the world's largest bond investors, said they expect the currency to extend its biggest rally in six years. The euro climbed as a report showed manufacturing in the currency bloc unexpectedly expanded this month. New Zealand's dollar fell after a report showed inflation in the South Pacific nation slowed.

"The dollar is the place to be," Gundlach said yesterday at ETF.com's Inside Fixed Income Conference in Newport Beach, California. It's a "no-brainer" for Germans and Spaniards to put their money into U.S. Treasuries, he said.

The dollar gained 0.6 percent to 107.83 yen as of 8:51 a.m. New York time. The Bloomberg Dollar Spot Index, which tracks the currency against 10 other currencies, added 0.1 percent to 1,068.52, having advanced 4.8 percent this year, the most since 2008.

The four-week average of jobless claims, a less-volatile measure than the weekly figure, dropped to 281,000, the lowest since May 2000, from 284,000 the week before, a Labor Department report showed today in Washington. The reading for the week ended Oct. 18 climbed by 17,000 to 283,000, in line with the median forecast of 52 economists surveyed by Bloomberg.

Best Performer

Pimco is betting the dollar will appreciate versus the euro and the yen, according to Mather, one of three managers for the $202 billion Pimco Total Return Fund, speaking at the same conference as Gundlach.

The strong dollar should last for several years, said Mather, who is based in Newport Beach. U.S. nominal growth will be 4 percent in the years ahead, Mather said. The International Monetary Fund predicts a 0.8 percent economic expansion for Japan in 2015.

Thanks to the rally in the U.S. currency, Treasuries are the only securities to make money for international investors in the biggest bond markets over the past three months.

U.S. government securities due in more than a year gained about 1.9 percent, based on data compiled by Bloomberg and the European Federation of Financial Analysts Societies. It's the only one of 26 bond indexes to advance over the period in dollar terms, based on changes in bond prices.

Fed Expectations

The dollar rally is being driven by expectations the Federal Reserve is preparing to raise interest rates while policy makers in Japan and Europe will maintain or increase bond-buying programs to pump money into their economies. Futures contracts indicate the U.S. central bank will boost its benchmark rate by January 2016.

Bank of Japan Governor Haruhiko Kuroda said this month a weaker yen in line with the fundamentals of the economy is positive. He also said the BOJ will increase its unprecedented stimulus program if needed.

Japan sold three-month bills today at minus 0.0037 percent, with a government-debt sale drawing a negative yield for the first time. The ECB began buying covered bonds this week, according to people familiar with the purchases.

Gundlach said he's "quite confident" the dollar will surpass its peak from 2009, when it climbed to the highest level since Bloomberg began compiling its dollar index at the end of 2004. DoubleLine, based in Los Angeles, had almost $52 billion in assets at the end of June, according to the company's website.

Yen Drops

The yen declined for a sixth day against the dollar today, and fell versus all but two of its 16 major peers.

"In the picture of modest dollar strength into year-end I still see dollar-yen moving higher," said Simon Smith, chief economist at FXPro Group Ltd. in London.

The euro climbed today as reports showed the euro-area economy may have moved one step away from another contraction.

A purchasing managers' index for the manufacturing industry rose to 50.7 in October from 50.3 a month earlier, London-based Markit Economics said. Analysts surveyed by Bloomberg News predicted a drop to 49.9. A reading below 50 indicates contraction. A measure for services held at 52.4.

The euro added 0.1 percent to $1.2658 and climbed 0.7 percent to 136.46 yen.

New Zealand's annual inflation rate fell to 1 percent in the third quarter from 1.6 percent in the previous three months, prompting speculation policy makers will delay raising borrowing costs.

The kiwi slid 1 percent to 78.52 U.S. cents, the biggest one-day decline since Oct. 3.