The dollar rose against the euro on speculation an increase in debt purchases by the Federal Reserve will cause inflation to accelerate. Sterling rallied against all of its major counterparts as a report showed the U.K.’s economy grew in the third quarter at double the pace forecast by economists and Standard & Poor’s raised the nation’s credit outlook. The yen dropped versus the dollar on the prospects of Japan renewing intervention to weaken the currency and protect exporters. “The Fed’s signaling channel has been very successful in raising inflation expectations as interpolated from various market prices,” analysts led by Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a research note. The dollar appreciated 0.6 percent to $1.3886 per euro at 10:18 a.m. in New York, from $1.3965 yesterday. The U.S. currency gained 0.6 percent to 81.33 yen, from 80.81 yesterday, when it reached 80.41 yen, the lowest level since April 1995. The euro was little changed at 112.88 yen, compared with 112.85. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound, increased 0.7 percent to 77.642. The gauge of the greenback has fallen 10 percent since the end of June on speculation a boost in quantitative easing will erode the value of the greenback. The Fed is next due to decide on policy at its Nov. 2-3 meeting. Dudley’s View William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, reiterated yesterday in Ithaca, New York, that current levels of inflation and a 9.6 percent unemployment rate are “unacceptable” and said the Fed needs to take action, even though expanding the balance sheet isn’t a “perfect tool.” The difference between yields on U.S. 10-year notes and equivalent inflation-linked securities, a gauge of inflation expectations over the life of the maturity that’s known as the break-even rate, increased to 2.19 percentage points, the highest level since May 18. Sterling gained 0.7 percent to $1.5836 and appreciated 1.4 to 87.61 pence per euro as S&P raised the U.K.’s outlook and affirmed its AAA rating. The pound also advanced as growth in gross domestic product damped concern the Bank of England will restart its bond-purchase program next month to boost the economy in a practice known as quantitative easing. The U.K.’s economy expanded 0.8 percent in the three months through September after increasing 1.2 percent in the second quarter, according to data from the Office for National Statistics. The median forecast of 35 economists in a Bloomberg News survey was for a 0.4 percent increase. ‘Numbers Were Strong’ “Those numbers were strong, which is going to be instructive for those who were thinking that QE could come as early as next month,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “They’ve got an opportunity to pause now until the end of the year to see how the consumer holds up.” The yen fell against the dollar as Japan’s Chief Cabinet Secretary Yoshito Sengoku said he met today with a senior finance ministry official to discuss the global economy and the foreign-exchange market. Japan’s currency has appreciated more than 5 percent since authorities acknowledged on Sept. 15 intervening for the first time in six years. Finance Minister Yoshihiko Noda said on Oct. 23 that the government stands ready to counter a rise in the yen if necessary. ‘Underlying Nervousness’ “There is some underlying nervousness about intervention,” said Daragh Maher, deputy head of global foreign-exchange strategy at Credit Agricole SA in London. “The market got a little more edgy” as the yen neared 80 per dollar, Maher said. Sweden’s krona fell against the euro and dollar after the nation’s central bank scaled back its interest-rate outlook as it raised borrowing costs, citing “weak developments overseas.” The Riksbank increased the main rate by a quarter- percentage point to 1 percent today, as forecast by all 20 economists in a Bloomberg News survey. The krona depreciated 1.3 percent to 9.3175 per euro after advancing to 9.1577, the strongest level since Oct. 1. The currency declined 2.2 percent to 6.7342 per dollar. Thailand’s baht fell on speculation the nation will announce steps to slow fund inflows after the currency reached a 13-year high this month. The baht slid 0.5 percent to 29.94 against the dollar. The Thai currency has risen almost 12 percent this year in the best performance among Asia currencies excluding the yen. To contact the reporters on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; Paul Dobson in London at pdobson2@bloomberg.net. To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Source