BLBG: Dollar Rises to Five-Year High Against Yen; Turkish Lira Slumps
The dollar strengthened to a five-year high against the yen before a U.S. report that analysts said will confirm the world’s largest economy expanded at the fastest pace since 2010 in the third quarter.
The Bloomberg Dollar Spot Index advanced for a fourth day after the Federal Reserve said this week it would cut monthly bond purchases by $10 billion as growth improves. The yen headed for an eighth weekly decline against the U.S. currency after the Bank of Japan retained its plan to add 60 trillion yen ($574 billion) to 70 trillion yen a year to the monetary base. Turkey’s lira slumped to a record as the government purged police leadership to fight back against a corruption probe.
“What you’ve got to recognize is that the justification for tapering is the assumption that the macroeconomic fundamentals in the U.S. are improving,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. The dollar “looks like it’s still got a bit further to go” against the yen, he said.
The dollar rose 0.2 percent to 104.46 yen at 7:41 a.m. New York time after appreciating to 104.59, the strongest level since October 2008. The U.S. currency gained 0.1 percent to $1.3648 per euro after appreciating to $1.3625, the most since Dec. 6. The yen fell 0.1 percent to 142.56 per euro.
Quicker Growth
U.S. gross domestic product rose at a 3.6 percent annual rate in the third quarter, the fastest pace since the first quarter of 2010, a Commerce Department report today will confirm, according to the median estimate in a Bloomberg News survey. Data due Dec. 23 will show personal income and spending both increased in November, separate surveys show.
The Fed said after its Dec. 17-18 meeting that it would trim monthly asset purchases to $75 billion from $85 billion. At the same time it reinforced an assurance that interest-rate increases are far off by saying the benchmark rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent.”
The central bank has kept the target for the federal-funds rate at a range of zero to 0.25 percent since December 2008.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.1 percent to 1,024.36 after rising to 1,024.68, the highest level since Dec. 3.
Euro Negative
Standard & Poor’s cut the European Union’s long-term rating to AA+ with a stable outlook. The region’s financial profile has deteriorated and “cohesion” among the member states has lessened, the rating company said.
“It seems to have been a short-term negative for the euro,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “That said, the times when ratings downgrades had a lasting impact on foreign-exchange rates seem to be a thing of the past.”
European Central Bank President Mario Draghi said Dec. 16 that there are risks from long periods of low inflation and policy makers have tools to address this, including “several other instruments on the liquidity front.”
“Euro-dollar will gradually grind lower” to less than $1.30 in a year, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Next year, the risk is that the ECB may move to boost liquidity” while the Fed keeps reducing stimulus, he said.
The yen has slumped 1.2 percent since Dec. 13, extending its decline during its eight-week losing streak to 6.7 percent.
BOJ Meeting
BOJ policy makers said after their two-day meeting they will maintain stimulus until annual inflation is stable at 2 percent. The BOJ will examine the risks and make policy adjustments as needed, according to a statement. Most economists surveyed by Bloomberg anticipate the central bank will boost stimulus after the national sales tax is raised in April.
Turkey’s lira dropped as much as 1.2 percent to 2.0970 per dollar, the weakest since at least 1981. The currency also dropped to a record 2.8636 per euro.
“Political risk has increased considerably,” said Melih Onder, chairman of Logos Portfoy Yonetimi AS, which manages the equivalent of $90 million. “It took a few days for foreign investors to digest what has happened. This selloff could continue for as long as 10 days.”
The government dismissed 14 department chiefs at the national police today, NTV television reported, in addition to some 50 yesterday, according to a Bloomberg HT report. The dismissals came after police detained dozens of people, including the head of a state bank and the sons of three cabinet ministers, in an inquiry into graft.
Most Asian currencies weakened on speculation inflows will slow as the Fed begins curbing stimulus that has fueled demand for emerging-market assets.
Malaysia’s ringgit dropped 0.6 percent to 3.2928 per dollar, the Thai baht fell 0.3 percent to 32.59 per dollar, while Indonesia’s rupiah was little changed after dropping to a five-year low of 12,255.
To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
