BLBG:Dollar Advances Against Yen On U.S. Recovery Optimism
The dollar climbed to a one-month high against the yen before a report that may show new-home construction in the U.S. held near the most in four years, adding to evidence the economic recovery is being sustained.
The greenback rose for a third day against the euro on waning prospects the Federal Reserve will extend stimulus. The pound strengthened against all its 16 major counterparts after U.K. retail sales unexpectedly increased last month. The yen slid as demand grew for higher-yielding alternatives.
“If we continue to see decent economic data then it’s likely that the Fed will delay” extending monetary stimulus, said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “There’s scope for disappointment if the Fed continues to hold off. That would be supportive of the dollar.”
The dollar rose 0.3 percent to 79.22 yen at 6:44 a.m. New York time, after reaching 79.36 yen, the strongest level since July 13. It advanced 0.2 percent to $1.2272 per euro. The 17- nation shared currency bought 97.23 yen, from 97.08 yesterday.
Bank of Tokyo-Mitsubishi recommended that investors buy the dollar against the euro as the U.S. economy recovers and Europe’s debt crisis worsens, said Hardman, who predicts it will reach $1.17 by year end. The median of 51 analysts’ and economists’ prediction compiled by Bloomberg News is $1.22.
The dollar has strengthened 0.3 percent in the past week as traders cut bets on more Fed easing, according to Bloomberg Correlation-Weighted Indexes which track the 10 developed-market currencies. That compares with a 0.6 percent drop in the yen. The euro is little changed in the period.
Housing Data
U.S. builders broke ground on 756,000 houses at an annual rate, according to the median estimate of 79 economists surveyed by Bloomberg News. June’s 760,000 pace was the highest since October 2008.
Other reports will show manufacturing in the Philadelphia area shrank at a slower pace in August and claims for unemployment benefits were little changed last week, according to Bloomberg surveys of analysts.
The U.S. central bank has held its target for overnight lending in a range of zero to 0.25 percent since 2008 and plans to keep it there at least through late 2014 to stimulate the world’s biggest economy. The Fed also bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of quantitative easing, also known as QE1 and QE2.
Spur Growth
“The reason the U.S. dollar has been strengthening is that the data hasn’t been too bad,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia (CBA) in Sydney. “The market has started to take out a little bit of pricing for QE3 in the near term.”
Dallas Fed President Richard Fisher said in a CNBC interview yesterday that the U.S. economy probably won’t lapse into recession in 2013 and that new stimulus wouldn’t spur growth.
Sterling rose 0.2 percent to 78.22 pence per euro and advanced less than 0.1 percent to $1.5690.
U.K. sales including auto fuel gained 0.3 percent from June, the Office for National Statistics said today in London. The median forecast of 22 economists in a Bloomberg News survey was for a 0.1 percent decline. Sales in June were revised to a 0.8 percent gain from 0.1 percent, which means second-quarter sales fell 0.3 percent, less than initially estimated. Excluding fuel, sales were unchanged in July.
Higher Yields
The yen has declined against the dollar as higher yields in the U.S. prompted Japanese investors to buy assets abroad.
Investors in Japan bought $10.4 billion of Treasuries in June, bringing their purchases for 2012 to $61.3 billion and total holdings of the debt to $1.1193 trillion, Treasury data released yesterday show.
That compares with China’s addition of $300 million to its portfolio of U.S. government securities for the month, raising its purchases this year to $12.4 billion and its stake in Treasuries to $1.1643 trillion. Should both countries continue buying at their respective paces through 2012, Japan will end the year with more Treasuries.
Five-year U.S. government debt offered a premium of 56 basis points over its Japanese counterpart today, from 59 basis points yesterday, the most since April 9 based on closing Bloomberg generic prices. The difference between yields on two- year U.S. Treasuries and similar maturity Japanese government notes was 19 basis points.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Sharon Chen in Singapore at schen462@bloomberg.net
To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net
