The dollar rose for the first time in three days against the yen amid speculation a recovery in the U.S. economy will prompt the Federal Reserve to withdraw stimulus that tends to debase the U.S. currency.
The yen weakened versus most of its 16 major counterparts as gains in Asian and European stocks damped demand for the relative safety of Japan’s currency. The Australian dollar strengthened against all of its most-active peers after the Reserve Bank damped speculation on further interest-rate cuts after reducing borrowing costs to a record low.
“If the U.S. economy does continue to gain upward momentum, it would support a move higher in U.S. yields and help lift the dollar versus the yen,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The door is open for the Fed to begin tapering before year-end. We’ve had more positive news on the data front and we could be seeing some improvement on the global-growth outlook.”
The dollar strengthened 0.1 percent to 98.43 yen as of 9:58 a.m. London time after climbing to 99.95 on Aug. 2, the highest level since July 25. The U.S. currency was little changed at $1.3263. The yen weakened 0.2 percent to 130.54 per euro after appreciating 0.8 percent yesterday.
The dollar will advance to 105 yen within six months, Hardman said, citing Bank of Tokyo-Mitsubishi’s forecasts.
U.S. payrolls increased by 162,000 in July, the smallest gain in four months, the Labor Department said on Aug. 2, while data yesterday showed service industries expanded at the fastest pace in five months.
Fed Bank of Chicago President Charles Evans will speak to reporters today. Evans has cited jobs growth of 200,000 as a benchmark for labor-market improvement. Cleveland Fed President Sandra Pianalto is due to speak on monetary policy and the economic outlook tomorrow.
The dollar has strengthened 5 percent this year, the second-biggest gainer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro rose 5.6 percent, while the yen slumped 8.8 percent.
The Australia’s dollar advanced for a second day as the central bank said it would adjust policy to foster growth and keep inflation contained.
Governor Glenn Stevens cut the overnight cash-rate target by a quarter percentage point to 2.5 percent and said the Reserve Bank of Australia’s board “has previously noted that the inflation outlook could provide some scope to ease policy further.” That contrasted with last month’s view the outlook for prices “may provide some scope for further easing.”
“They haven’t said that they have more room to cut rates,” said David Forrester, a senior vice president for Group-of-10 currency strategy at Macquarie Bank Ltd. in Singapore. “It’s considered more of a neutral bias than an easing bias. I think we’ll see a squeeze” higher in the Aussie.
Australia’s dollar rose 0.7 percent to 89.91 U.S. cents after sliding to 88.48 cents yesterday, the weakest level since August 2010.
To contact the reporter on this story: Neal Armstrong in London at firstname.lastname@example.org