Dollar Holds Gain Versus Yen Before Fed Officials Speak Tomorrow

The dollar held a two-week gain versus the yen before Federal Reserve officials speak amid signs the U.S. economy may be strong enough for the central bank to taper monetary stimulus.

The greenback remained higher after jobs data last week topped economist forecasts, boosting Treasury yields. Fed Bank of Minneapolis President Narayana Kocherlakota and Atlanta peer Dennis Lockhart will speak tomorrow. The euro was near a 10-month low against the pound ahead of data this week that may show factory output declined in the currency bloc and after an unexpected rate reduction by the European Central Bank.

“We expect the dollar to strengthen gradually as U.S. monetary policy is normalized,” said Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo., a unit of Japan’s biggest financial group by market value. “The ECB still retains a policy guidance that’s inclined toward a further rate cut.”

The dollar was at 99 yen as of 2:11 p.m. in Tokyo after climbing 1 percent to 99.05 on Nov. 8. It gained 1.7 percent over the past two weeks. The U.S. currency was little changed at $1.3363 per euro. Europe’s 17-nation currency fell 0.1 percent to 132.29 yen.

Kocherlakota is scheduled to speak tomorrow on monetary policy and will take questions following his address. He said Oct. 17 that officials must do “whatever it takes” to push for a faster return to full employment while keeping inflation near 2 percent, including possibly providing more stimulus.

Lockhart said Nov. 8 that the Fed will consider reducing its bond-buying program at next month’s policy meeting.

U.S. employers added 204,000 workers in October, compared with a Bloomberg News survey median for a 120,000 gain, a report last week showed.

Europe’s Economy

Euro-area industrial output probably fell 0.3 percent in September from a month earlier when it rose 1 percent, a separate Bloomberg News poll of economists shows. The report is due for release on Nov. 13.

The ECB halved its main refinancing rate on Nov. 7 to 0.25 percent with ECB President Mario Draghi saying the 17-nation currency bloc risks a “prolonged period” of low inflation.

The euro has weakened 0.4 percent in the past month, according to Bloomberg Correlation Weighted Indexes that track 10 developed-nation currencies. The dollar has strengthened 1.1 percent, while the yen advanced 0.6 percent.

Trade Deficit

Japan recorded a seasonally-adjusted current account deficit of 125.2 billion yen ($1.3 billion) in September, the most in data going back to 1985, a Ministry of Finance report today showed.

The ministry report also showed that Japanese investors increased holdings of U.K. sovereign debt by 184 billion yen in September, the most in two years. They offloaded a net 173.7 billion yen of Netherlands’ bonds, the biggest drop in a year.

Their holdings of Treasuries rose for a third month, the longest run since the four months ended March 2012, climbing by a net 1.26 trillion yen in U.S. debt, according to the figures.

Demand for the pound may be sustained with some strategists predicting that Bank of England Governor Mark Carney will signal interest rates could rise sooner than previously anticipated as unemployment edges closer to policy makers’ key threshold.

Pound Gains

The U.K. jobless rate fell to 7.6 percent in the third quarter, the lowest since 2009, from 7.7 percent, according to the median of estimates in a Bloomberg News survey before data due Nov. 13. Soon after, Carney publishes new economic and inflation forecasts at a quarterly press conference in London.

Since the last projections in August, when the BOE said unemployment is unlikely to hit the 7 percent threshold for considering rate increases until late 2016, the recovery has strengthened and the economy added more jobs than expected.

“Faced with mounting evidence of firming growth, the BOE will likely have to revise its assumptions upwards,” Mitul Kotecha, global head of foreign-exchange strategy at Credit Agricole CIB in Hong Kong, wrote in a research report today. “This bodes well for the pound and while gains against the U.S. dollar are likely to be limited, euro-pound is set for a further downward correction.”

The pound traded little changed at 83.44 pence per euro after touching 83.01 pence on Nov. 7, the most since January. It will likely break through the 83 pence level, Kotecha said.

To contact the reporters on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net

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