By Polya Lesova and Michael Kitchen, MarketWatch
NEW YORK (MarketWatch) — The euro and the British pound rallied against the U.S. dollar on Friday as European markets reopened after the Christmas and Boxing Day breaks.
The euro EURUSD +0.92% climbed 1.2% to trade at $1.3851, compared with $1.3693 on Thursday.
The British pound GBPUSD +0.67% advanced 0.7% to $1.6534, from $1.6419 on Thursday.
By morning trading hours in the U.S., the ICE dollar index DXY -0.67% — which tracks the greenback against six rivals — fell to 79.838, down from 80.488 late Thursday in North America.
The WSJ Dollar Index XX:BUXX -0.38% fell to 73.57 from 73.92.
Reopening after the Christmas break, European equity markets rose on Friday. U.S. stock futures traded little changed after Wall Street rose to record highs on Thursday.
Against the Japanese yen USDJPY +0.12% , the dollar was little changed at 104.86 yen from late Thursday’s ¥104.74. Earlier in the day, the dollar made a short-lived jump above the ¥105 handle, a level it hadn’t seen since 2008, after the release of a slate of Japanese data that included a slightly better-than-forecast gain in consumer inflation.
Japan’s core consumer price index — which excludes volatile fresh-food prices — rose by 1.2% from a year earlier, accelerating from a 0.9% increase in October and above a consensus estimate of 1.1%.
Aggressive monetary easing and fiscal stimulus, which followed the election of Shinzo Abe as Japan’s prime minister in December last year, have sent the yen sharply lower over the past 12 months.
“2013 was the worst year for the Japanese yen in more than a decade,” wrote BK Asset Management managing director Kathy Lien in a note Thursday. “Taking a look at the continuous rise in dollar-yen today and its proximity to ¥105, it is almost hard to believe that on Jan. 1, it was trading at ¥86.”
Lien said the yen’s fate for 2014 would rest on the timing and size of any future stimulus. Japan is due to increase its national sales tax in April in a bid to shore up government finances. In addition, some economists expect fresh monetary easing from the Bank of Japan, an offsetting cut to other taxes, or possibly both. “If they marry more [Bank of Japan] asset purchases with lower corporate taxes, dollar-yen could rise to fresh highs above ¥108, and possibly even ¥110,” Lien wrote.
But, she added, “if they forgo another round of stimulus next year, dollar-yen could be subject to a nasty correction ... because many investors are positioned for more easing.”
The Australian dollar AUDUSD +0.20% rose to 89.16 U.S. cents from 88.89 U.S. cents late Thursday.
