SD: Dollar Rises on U.S. Economic Prospects; Yen Touches 9-Month Low
March 2 (Bloomberg) -- The dollar rose to a nine-month high against the yen before U.S. reports next week forecast to show growth in the world’s biggest economy is gathering pace while deflation persists in Japan.
The yen dropped against most of its major counterparts as Japan’s consumer prices decreased, fanning speculation the central bank will expand monetary easing. The dollar headed for its biggest weekly gain in almost two months versus the currencies of major U.S. trading partners on speculation the Federal Reserve may refrain from a third round of asset purchases. The euro declined for a third day against the dollar as a German report showed retail sales unexpectedly fell.
“The move in dollar-yen seems to be dragging the dollar higher,” said Adam Cole, head of currency strategy at Royal Bank of Canada in London. “That’s spilling over to other currencies and keeping the dollar well-bid across the board.”
The dollar appreciated 0.5 percent to 81.54 yen at 7:33 a.m. New York time after it climbed to 81.71, the highest level since May 31. Japan’s currency was little changed at 107.96 per euro. The 17-nation euro decreased 0.5 percent to $1.3245.
Sterling rose for a sixth day against the euro as an industry report showed an index for U.K. construction rose in February to an 11-month high, boosting speculation the nation will avoid a recession. The pound gained 0.1 percent to 83.34 pence per euro after reaching 83.14, the strongest level since Feb. 20.
Dollar Index
Intercontinental Exchange Inc.’s Dollar Index, used to track the greenback against the currencies of six major U.S. trading partners, gained 0.5 percent to 79.159. The gauge has increased 0.9 percent this week, the most since the five days ended Jan. 6.
Federal Reserve Chairman Ben S. Bernanke said yesterday elevated unemployment and subdued inflation mean interest rates are likely to stay low, without offering any sign that the economy needed an additional monetary boost.
Bernanke told a Senate hearing that there were “positive developments” in the job market while saying it’s still “far from normal.” He said the inflationary impact of higher gasoline prices was likely to be temporary.
The central bank is replacing $400 billion of short-term debt in its portfolio with longer-term Treasuries to cap borrowing costs further and counter risks of a recession. The Fed, which next meets March 13, bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 until June 2011.
‘Accommodative’ Fed
“Bernanke yesterday described policy as highly accommodative,” Jane Foley, a senior currency strategist at Rabobank International in London, wrote in an e-mailed report today. The dollar “is benefiting on speculation that the Fed may not proceed with additional QE,” Foley wrote.
The Institute for Supply Management’s non-manufacturing index was at 56.1, almost the highest in a year in February, according to the median forecast in a Bloomberg News survey of economists before the report from the Tempe, Arizona, group on March 5. Readings above 50 signal expansion. Other U.S. reports next week are forecast to show companies hired more workers.
Japan’s consumer prices excluding fresh food dropped for a fourth month in January, decreasing 0.1 percent from a year earlier, the statistics bureau said. The Bank of Japan set an inflation goal of 1 percent on Feb. 14 and added to an asset-purchase fund that targets notes maturing within two years. Policy makers next meet March 12-13.
BOJ Outlook
“There are expectations in markets for further easing by the Bank of Japan at its next meeting, leading to some yen selling,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The CPI number was still negative, far away from the BOJ’s target.”
The yen has weakened 6.8 percent in the past three months in the worst performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro was the second-biggest loser, dropping 3.2 percent. The dollar has declined 2.1 percent.
The euro weakened versus the dollar after Germany’s statistics bureau said retail sales adjusted for inflation and seasonal swings fell 1.6 percent in January. Economists forecast a gain of 0.5 percent, a Bloomberg News survey showed.
Euro-area retail sales dropped for a third month in January, the European Union’s statistics office will say on March 5, another Bloomberg survey showed. The European Central Bank will keep its benchmark interest rate at a record low 1 percent on March 8, according to a separate survey.
European leaders agreed this week to provide capital faster for the planned permanent bailout fund in a concession to international pressure to strengthen the currency bloc’s defenses against the debt crisis.
