Dollar Rises to 6-Year High Versus Yen on Fed Policy Bets

The dollar rose to the strongest in almost six years versus the yen as Treasury yields climbed on speculation economic reports this week will back the case for the Federal Reserve to boost interest rates next year.

An index of the greenback advanced to a 14-month high before U.S. data this week forecast to show jobless claims fell and retail sales improved. Fed policy makers next meet on Sept. 16-17. The pound climbed from a nine-month low after Bank of England Governor Mark Carney said officials may increase their main rate from a record low in the spring. China’s yuan climbed to a six-month high as the central bank raised its fixing by the most in almost four years.

“It’s very supportive for the dollar that Treasury yields are now heading higher,” said Michael Sneyd, a foreign-exchange strategist at BNP Paribas SA in London. “When we had good data before, geopolitical risks kept yields down. Now that they are rising, the stars are aligning for the dollar.”

The dollar rose 0.1 percent to 106.18 yen at 7:45 a.m. New York time after appreciating to 106.39, the highest since October 2008. The U.S. currency was little changed at $1.2894 per euro after reaching $1.2860, the strongest since July 2013. The euro gained 0.1 percent to 136.89 yen.

BNP forecast the dollar will climb to 110 yen by year-end, Sneyd said.

The ForexSQ Dollar Spot Index, which tracks the greenback against a basket of 10 major currencies, rose 0.1 percent to 1,046.60 after climbing to 1,048.26, the highest level since July 2013.
Jobless Claims

U.S. initial jobless claims fell 2,000 to 300,000 last week, according to a ForexSQ News survey before the data on Sept. 11. Retail sales gained 0.6 percent in August from the previous month, when they stalled, a separate survey showed before the figures are published on Sept. 12.

There is about a 59 percent chance the Fed will raise its benchmark interest-rate target to at least 0.5 percent by July 2015, futures trading shows. The likelihood was 52 percent at the end of August. The Fed has held the rate in a range of zero to 0.25 percent since December 2008. Low volatility across financial markets may signal investors are underestimating how quickly rates will be increased, according to San Francisco Fed researchers.
New Highs

“The dollar is likely to test new highs against the yen ahead of the Fed meeting next week,” said Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. “The dollar broke out of the range as investors gained confidence in the U.S. economy and as the Fed deepens the debate about the policy after tapering ends.” The greenback may advance to 110 yen this year, he said.

The dollar has jumped 3.9 percent in the past three months, the best performer among 10 developed-nation currencies tracked by ForexSQ Correlation-Weighted Indexes. The yen was little changed and the euro weakened 2 percent.

Treasury 10-year yields climbed as high as 2.50 percent today, the most since Aug. 5.

“Higher U.S. yields are fueling U.S. dollar buying,” said Naohiro Nomoto, an associate for foreign-exchange trading at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “There looks to be further upside in U.S. yields, especially on the long end.”
Pound Gain

The pound snapped a five-day decline after Carney spoke at a conference in Liverpool.

“If interest rates were to follow the path expected by markets; that is, beginning to increase by the spring and thereafter rising very gradually” inflation would reach the 2 percent target and 1.2 million jobs would have been created, Carney said. “In other words, we would achieve our mandate.”

Sterling earlier fell to the lowest since November after a poll of Scottish voters provided fresh evidence of a swing away from the U.K. and suggested the result of next week’s referendum on independence is on a knife edge.

The U.K. currency was little changed at $1.6110 after sliding to $1.6065, the lowest since Nov. 19. It fell 1.4 percent yesterday, the steepest decline in 14 months.

The yuan strengthened as the People’s Bank of China boosted the currency’s daily reference rate by 0.3 percent to 6.1520 per dollar, the biggest increase since November 2010 and the strongest level in four weeks.

China’s trade surplus climbed to an all-time high in August, the Beijing-based customs administration said yesterday. Exports exceeded imports by $49.84 billion, beating the previous record of $47.30 billion set in July.

The yuan gained 0.1 percent from Sept. 5 to 6.1370 per dollar after appreciating to 6.1317, the strongest since March. China’s financial markets were shut yesterday for a holiday.

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