BLBG:Dollar Touches 11-Month High Versus Yen on Recovery Signs
The dollar rose to an 11-month high against the yen before U.S. data forecast to show regional manufacturing expanded and initial jobless claims decreased, adding to signs the American economy is gathering momentum.
The greenback was near the highest level in four weeks against the euro amid reduced bets the Federal Reserve will begin a third round of bond purchases, or quantitative easing, which could debase the world’s reserve currency. The yen declined against all 16 of its major counterparts as Asian stocks advanced for a third day, curbing demand for the lower-yielding Japanese currency.
“We’re seeing a shift in trend to dollar buying across the board,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Should U.S. economic data continue to come in firm, it will support the market’s view that the Fed doesn’t need QE3.”
The dollar touched 84.18 yen, the highest level since April 13, before trading at 83.92 yen at 7:03 a.m. in London, 0.2 percent above yesterday’s close in New York. The U.S. currency was at $1.3040 per euro from $1.3032 yesterday. It earlier climbed to as high as $1.3004, the strongest since Feb. 16. The yen dropped 0.3 percent to 109.39 per euro.
U.S. Manufacturing
The Federal Reserve Bank of New York’s general economic index probably slid to 17.5 this month from 19.5 in February, according to the median estimate of economists in a Bloomberg News survey. Readings greater than zero signal expansion in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut. A gauge of manufacturing in the Philadelphia region may increase to 12 in March, another poll indicated. That would be the highest since April. Both Fed reports are due today.
The Labor Department may say today the number of initial applications by Americans for jobless benefits fell by 5,000 to 357,000 in the week ended March 10, according to economists surveyed by Bloomberg.
The Federal Open Market Committee said March 13 it expects “moderate economic growth” and predicted the U.S. unemployment rate “will decline gradually.” The Fed bought $2.3 trillion of securities in two rounds of bond purchases, and has pledged to keep interest rates low through late 2014.
“The fortunes of the U.S. dollar are contingent on the Fed ticking the boxes for a U.S. economic recovery,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “Markets are pricing out the risk of QE3 from the Fed and that’s seen U.S. bond yields rise and the U.S. dollar rally. The dollar is still long way below its long-run equilibrium so it still has quite a lot of upside potential.”
Higher U.S. Yields
U.S. Treasuries declined for a seventh day, driving yields higher. The extra yield investors receive from holding two-year Treasuries instead of similar-maturity Japanese debt widened to 28.3 basis points, the most since July, increasing the attractiveness of dollar assets.
There is a “relatively high” correlation between the two- year spread and the dollar-yen exchange rate, Bank of Japan (8301) Governor Masaaki Shirakawa has said. The Japanese central bank unexpectedly added 10 trillion yen ($119 billion) to its asset- purchase program at its Feb. 14 meeting.
The MSCI Asia Pacific Index of shares rose as much as 0.3 percent, set for a third day of gains.
Pressure on Yen
Downward pressure on the yen is intensifying amid an aggressive BOJ monetary-easing stance, waning European fiscal concerns and strengthening of risk-taking sentiment among global investors, said Tohru Sasaki, head of Japan rates and foreign- exchange research at JPMorgan Chase & Co. in Tokyo. The dollar is supported as long-term U.S. yields are “clearly rising out of their recent range” after the March 13 FOMC meeting, Sasaki said.
JPMorgan lowered its yen forecast against the dollar to 86 from 76 for the end of the second quarter. The Japanese currency will trade at 83 per dollar at year-end, down from a previous call of 72, according to the bank.
The yen has declined 6.1 percent in the past month, the worst performer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 1.2 percent, and the euro advanced 1 percent.
Demand for the Australian and New Zealand dollars was limited after China’s Premier Wen Jiabao said a bursting property bubble would hurt the entire economy and the government wants “long-term steady and sound growth” in housing. China is Australia’s biggest trading partner and New Zealand’s second- largest export market.
Australia’s dollar touched $1.0423, the lowest since Jan. 20, before trading 0.2 percent higher than yesterday’s close in New York at $1.0476. New Zealand’s currency touched 80.61 U.S. cents, the least since Jan. 25, before trading at 81.15 from 80.93 yesterday.
Norwegian Krone
Norway’s krone declined to the lowest level in five weeks after the central bank yesterday reduced its main interest rate 0.25 percentage point to 1.5 percent and said the stronger currency was damping growth in the Scandinavian nation.
Norges Bank had been forecast leave its benchmark rate at 1.75 percent, according to 14 of 16 economists surveyed by Bloomberg.
The krone slipped 0.2 percent to 5.8127 per dollar, after falling to as low as 5.8393, the weakest since Feb. 6.
To contact the reporter on this story: Monami Yui in Tokyo at myui1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
