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By Bloomberg

A gauge of the dollar headed for a seventh monthly gain, the longest in at least a decade, on speculation the Federal Reserve will raise interest rates this year while its global peers ease policy.

The Bloomberg Dollar Spot Index has advanced 3 percent in January, increasing its rally to 16 percent since the end of June. The yen climbed versus all except one of its 16 major counterparts as a government report showed Japanese industrial production rebounded in December. Australia’s dollar strengthened after tumbling the most in three months Thursday.

“The U.S. dollar is the only currency that is not associated with rate cut expectations,” said Daisuke Karakama, chief market economist at Mizuho Bank Ltd. in Tokyo. The currencies of Australia and New Zealand will be pressured by expectations for rate cuts amid global disinflation, he said. “All this means is dollar buying will continue.”

The Bloomberg Dollar Spot Index, a gauge of the currency’s performance against 10 major peers, was at 1,164.82 as of 12:52 p.m. in Tokyo from 1,165.60 yesterday, the highest closing level in data going back to 2004.

The yen traded at 133.62 per euro from 133.90, set for a 1.3 percent weekly drop, its first this month. Japan’s currency rose 0.3 percent against the dollar to 118.

Danish policy makers on Thursday cut borrowing costs for the third time in 10 days, while Turkish officials said they may hold an emergency meeting next week to lower interest rates.

U.S. Contrasts

Central banks from Canada to Switzerland and Singapore are shocking currency traders with surprise policy announcements this year, sending volatility higher. The euro plunged last week as the European Central Bank introduced a bond-buying program that was bigger than forecast.

While those central banks lean dovish, the U.S. is headed in the opposite direction with the Fed raising its assessment of the economy and playing down low inflation at a two-day meeting that ended Wednesday.

“Speculation the Fed will raise rates is spurring a strong-dollar mood,” said Daisaku Ueno, chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “The market is shifting away from the dollar-yen pair to other currencies to trade on the dollar’s strength.”

The greenback may extend gains should a Friday report on fourth-quarter U.S. gross domestic product confirm the economy sustained its growth, said Akira Moroga, manager of currency products at Aozora Bank Ltd. in Tokyo.

The dollar has gained 15 percent over the past year, the most in a basket of 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 5.7 percent, while the yen declined 1.3 percent.

Aussie Bonds

In Japan, trade ministry data on Friday showed industrial production snapped two quarters of decline, signaling the world’s third-largest economy may have limped out of recession.

Australia’s 10-year government bond yield fell to a record low of 2.46 percent today as traders increased bets that the nation’s central bank will cut interest rates next week.

Traders see a 70 percent chance the Reserve Bank of Australia will lower rates at this year’s first policy meeting on Feb. 3, up from 27 percent odds on Dec. 31, according to overnight interest-rate swaps.

The Australian dollar rose 0.2 percent to 77.79 U.S. cents, still within 1 cent of its lowest since July 2009 of 77.20 hit Thursday. The New Zealand dollar gained 0.2 percent to 72.79 U.S. cents, after sliding to its lowest since March 2011 of 72.34 yesterday.