Dollar Reaches Six-Month High as Improving Economy Boosts Allure

The dollar touched a six-month high against the yen after signs of improvement in the world’s largest economy boosted the allure of U.S. assets.

The Bloomberg U.S. Dollar Index was near a two-week high before data next week forecast to show U.S. manufacturing expanded for a sixth month. The euro retreated from a four-year high against the yen as technical indicators signaled its recent gains were excessive. The Australian dollar rallied from a two-month low after business investment unexpectedly grew.

“A string of reasonably positive data in the U.S. is probably going to help the dollar via higher treasury yields,” said Michael Turner, a debt and currency strategist at Royal Bank of Canada in Sydney. Yields on Japanese government bonds “have been falling fairly consistently for the past four or five months and that’s kept the yen fairly weak.”

The dollar was little changed at 102.13 yen as of 6:42 a.m. in London from yesterday, after touching 102.28, the strongest level since May 29. It traded at $1.3583 against the euro from $1.3579. The shared currency was unchanged at 138.73 yen after touching 138.84, the highest since June 2009.

The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, declined 0.1 percent to 1,020.55. It rose 0.3 percent to 1,021.55 yesterday, the highest close since Nov. 12.

The benchmark U.S. 10-year yield gained three basis points, or 0.03 percentage point, to 2.74 percent yesterday. U.S. markets are closed for Thanksgiving holiday. Similar-dated Japanese government bonds yielded 0.60 percent today.

U.S. Manufacturing

The Institute for Supply Management’s index of manufacturing probably slid to 55 this month from 56.4 in October, the highest since April 2011, according to the median estimate of economists surveyed by Bloomberg News before the data are released on Dec. 2.

The Labor Department reported yesterday jobless claims in the week ended Nov. 23 declined 10,000 to 316,000, fewer than the 330,000 median estimate of economists in a Bloomberg poll. The Conference Board’s index of U.S. leading indicators rose for a fourth straight month in October.

The Federal Reserve will pare its asset purchases to $70 billion, from the current pace of $85 billion, at its March 18-19 meeting, according to the median of 32 economist estimates in a Bloomberg survey this month. The central bank’s next gathering is Dec. 17-18.

The dollar has climbed 2.1 percent in the past month, the biggest gain after the pound’s 3.3 percent advance, among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen lost 2.9 percent in the same period, while the euro appreciated 0.5 percent.

RSI Chart

The dollar’s 14-day relative strength index versus the Japanese currency was at 72, above the 70 level which indicates an asset’s price has risen too rapidly and it may be poised to reverse course. The euro’s RSI against the yen was at 71.

Economists in a separate Bloomberg survey estimate European Union statistics office data tomorrow will show consumer prices in the region rose 0.8 percent in November from a year ago, after increasing 0.7 percent the prior month, the slowest pace in four years.

“The very weak reading on CPI last time led to an ECB rate cut, so the data will be closely watched,” said Noriaki Murao, the New York-based managing director of the marketing group for financial markets at Bank of Tokyo-Mitsubishi UFJ Ltd. “The euro will be swayed depending on whether it will beat or trail expectations in a thin market.”

Coalition Accord

German Chancellor Angela Merkel yesterday clinched a coalition agreement with the Social Democratic Party that calls for a national minimum wage and pledges to increase spending on pensions and infrastructure. The agreement must still be passed by the entire SPD, which plans a referendum among its about 470,000 members.

In Australia, private capital spending jumped 3.6 percent in the third quarter from the previous period, when it rose a revised 1.6 percent. The median forecast of economists surveyed by Bloomberg was for a 1.2 percent decline.

“The actual expenditure was a surprise,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “It’s suggesting we’re not going to see that sharp decline in mining investment that some had feared. That’s providing some upside for Aussie.”

Australia’s currency rose 0.5 percent to 91.24 U.S. cents from yesterday, when it touched 90.65, the weakest since Sept. 4.

To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net

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