By William L. Watts, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar scored modest gains versus most major rivals Thursday, while the Japanese yen remained under pressure in the wake of a recent rise in U.S. Treasury yields and expectations the Bank of Japan will move faster than the Federal Reserve to further ease monetary policy.
The ICE dollar index DXY +0.03% , which measures the U.S. unit against a basket of six major rivals, traded at 82.778, up from 82.649 in North American trade late Wednesday.
The dollar fetched 79.28 Japanese yen USDJPY +0.31% , up from ÂĄ78.88 on Wednesday. The U.S. currency has gained 1.3% on the yen since the start of the week. The euro EURJPY +0.26% traded at ÂĄ97.37, up 0.3% from Wednesday and 1.2% for the week-to-date.
U.S. Treasurys rebounded in electronic trade, taking back some of the recent rise in yields. The yield on the 10-year note 10_YEAR -0.39% declined by around one basis point to 1.81%, according to FactSet.
But a recent run-up in yields relative to Japan by U.S. and other major developed countries has undercut the attractiveness of the yen to investors, strategists said, allowing the currency to rise.
Interest-rate differentials “between Japan and other major markets have widened markedly in recent weeks. The U.S. 10-year yield has jumped by 45 basis points over the past three weeks to 1.83%, a three-month high,” said Michael Derks, chief strategist at FxPro in London.
“Similar increases in longer-dated yields have been recorded in other major bond markets such as Germany, Canada and Australia. In contrast, Japanese bond yields have barely moved,” he said.
Meanwhile, the minutes of the Bank of Japan’s last meeting of monetary policy makers indicated some board members are likely to vote for further action sooner rather than later, Derks noted.
The dollar/yen pair’s move above the ¥79 level should please the Japanese government, while a further widening of interest-rate differentials will likely make for further yen weakness in the near term, he said.
The WSJ dollar index XX:BUXX +0.09% , which measures the U.S. currency against a basket of heavily traded currencies, rose to 71.87 from Wednesday’s close of 71.78.
The euro EURUSD -0.05% drooped slightly to $1.2281 from $1.2289 in quiet trade.
The British pound GBPUSD +0.10% changed hands at $1.5694, little changed from $1.5691 late Wednesday.
U.K. retail sales volumes rose more than expected in July. The Office for National Statistics reported a 0.3% monthly rise in volumes, while year-on-year sales grew 2.8%.
Economists had forecast a flat monthly performance and a 1.6% increase over July 2011. See Market Pulse: U.K. July retail sales up; no impact from Olympics .
The ONS said feedback from retailers indicated the Olympic Games, which began July 27, had no impact on trade.
“Looking forward, while lower inflation will boost households’ purchasing power and should thus encourage some spending, consumption growth is likely to be subdued in light of persisting low consumer confidence, uncertainty about the economy outlook, and the ongoing process of households’ balance sheets repair,” said Mauro Giorgio Marrano, economist at UniCredit Bank in Milan.
The Australian dollar AUDUSD -0.14% slipped to $1.0491 versus its U.S. counterpart from $1.0507.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt.
