Dollar Climbs as Reports Boost Bets on Fed Tapering; Yen Slides

The dollar gained versus the euro and the yen as reports showed U.S. consumer confidence reached the highest level since 2008 and home values climbed, bolstering bets the Federal Reserve will slow its bond buying.

Japan’s currency slid against most of its major peers after an adviser to Japanese Prime Minister Shinzo Abe said the nation’s central bank can add to its unprecedented stimulus if necessary to support economic revival. South Africa’s rand tumbled to a four-year low after the economy slowed more than forecast in the first quarter. An inflation indicator favored by the Fed declined in April, a report on May 31 may show.

“Confidence today was quite good, which could help the economic outlook,” Brian Kim, a foreign-exchange strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said in a telephone interview. “But ultimately the Fed outlook still hinges on what we see in terms of inflation.”

The dollar appreciated 0.6 percent to $1.2856 per euro at 5 p.m. New York time. The greenback strengthened 1.4 percent to 102.37 yen after reaching 103.74 on May 22, the strongest level since October 2008. The Japanese currency slid 0.8 percent to 131.59 per euro.

Trading in over-the-counter foreign-exchange options totaled $31 billion, compared with $27 billion on May 24, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $8.4 billion, the largest share of trades at 27 percent. Euro-dollar options were the second most-actively traded, at $3.7 billion, or 12 percent.

Above Average

Dollar-yen options trading was 9 percent above the average for the past five Tuesdays at a similar time in the day, according to Bloomberg analysis. Euro-dollar options trading was 5 percent below average.

The Hungarian forint gained versus most of 31 major counterparts after the country’s central bank kept an interest-rate reduction to no more than a quarter-percentage point for a 10th consecutive month as the inflation rate plunged. The currency appreciated 0.1 percent to 223.55 per dollar after rising 1.3 percent earlier to 220.74.

South Africa’s rand weakened against 31 most-traded peers as the nation’s statistics agency reported gross domestic product growth slowed to an annualized 0.9 percent, from 2.1 percent in the fourth quarter. The rand dropped 1.8 percent to 9.7847 per dollar and reached 9.8086, the weakest level since March 2009.

Dollar Index

The Dollar Index (SPX), which Intercontinental Exchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, increased 0.7 percent to 84.263.

The Conference Board’s confidence index rose to 76.2, the strongest since February 2008, from a revised 69 in April, data from the New York-based research group showed today. The median forecast called for an increase to 71.2.

The Standard & Poor’s/Case-Shiller index of property values increased 10.9 percent in March from a year earlier, the biggest gain since April 2006, a report showed in New York.

The Dollar Index climbed to 84.498 last week, the highest since 2010, after Fed Chairman Ben S. Bernanke said the central bank could cut the pace of asset purchases if officials see indications of sustained growth. The Fed is buying $85 billion of bonds a month under its quantitative-easing strategy to spur growth, which tends to debase the U.S. currency.

Fed Bets

“At a time when the rest of the world’s economies are on shaky ground, U.S. economic data continues to surprise to the upside, making the dollar extremely attractive to global investors,” Kathy Lien, managing director of foreign exchange at BK Asset Management, an investment advisory firm in New York, wrote in a client note. “As U.S. economic data continues to improve, expectations for tapering asset purchases by the Fed will continue to build.”

Policy makers have said they’ll maintain stimulus until the labor market shows significant improvement, as long as projected inflation stays below 2.5 percent.

The Fed’s preferred measure of inflation, the personal-consumption expenditures deflator, fell 0.2 percent in April, a Bloomberg survey forecast before the Commerce Department reports the data this week.

Japan’s currency fell versus the dollar even as yields on 10-year Japanese government bonds rose eight basis points, or 0.08 percentage point, to 0.91 percent, approaching the 13-month high of 1 percent they reached May 23. U.S. Treasury 10-year note yields added 16 basis points to 2.17 percent, widening the gap with the Japanese yields to 1.26 percentage points, the most since April 4.

Japanese Stimulus

The Bank of Japan pledged April 4 to double bond buying in an attempt to secure 2 percent inflation and drag the world’s third-biggest economy out of 15 years of deflation.

BOJ Governor Haruhiko Kuroda “should continue to trust in his judgment and ease further” if needed, Koichi Hamada, a retired Yale University professor advising Abe, said today. The policy is working “as well or better than expected,” he said.

The Standard & Poor’s 500 Index gained as much as 1.5 percent before paring its advance to 0.6 percent. Japan’s Nikkei 225 stock average rose 1.2 percent.

The yen has lost 12 percent this year, the biggest decline among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is the biggest gainer, rising 5.9 percent, while the euro has climbed 2.9 percent.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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