Dollar Rises Versus Yen as Fed’s Bullard Says Taper Odds Rise

The dollar gained versus the yen for a second day as Federal Reserve Bank of St. Louis President James Bullard said the odds of tapering bond purchases have risen along with gains in the labor market.

The greenback strengthened to almost the highest level since May versus Japan’s currency after Bullard, who votes on policy this year, commented on a report last week that showed the jobless rate dropped to a five-year low of 7 percent in November as employers added more workers than forecast. The pound snapped a four-day decline against the euro and Mexico’s peso rallied to the strongest in almost two months.

“We’re still riding the Friday numbers,” Fabian Eliasson, head of U.S. currency sales in New York at Mizuho Financial Group Inc., said in a phone interview. “We’re just getting clarity and listening to the Fed speakers.”

The dollar rose 0.4 percent to 103.27 yen at 5 p.m. New York time. It touched 103.38 on Dec. 3, the highest since May 23. The greenback fell 0.2 percent to $1.3739 against the euro. The Japanese currency slid 0.6 percent to 141.88 per euro and reached 141.95, the least since October 2008.

Futures Positions

Futures traders increased bets the yen will decline against the dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 133,383 on Dec. 3, the most since July 2007, and compared with bearish bets of 123,202 a week earlier.

The Standard & Poor’s 500 Index of stocks gained 0.2 percent.

“Given that we’re in a situation where risk is positive, which helps equities, dollar-yen is going to go higher,” Dan Dorrow, the head of research at Faros Trading in Stamford, Connecticut, said in a phone interview.

Britain’s currency advanced for the first time in five days versus the euro as Bank of England Governor Mark Carney said in a speech in New York that U.K. economic news “has been positive.” The central bank kept its main interest rate at a record-low 0.5 percent last week to help foster a recovery.

The U.K. currency appreciated 0.3 percent to 83.62 pence per euro after weakening 1.2 percent in the previous four days.

Mexico Reform

The Mexican peso strengthened for a second day as the seven-decade state energy monopoly is poised to end after senators from the nation’s two biggest political parties agreed to allow output sharing contracts and licenses for outside producers. The peso rose 0.6 percent to 12.8556 per dollar. It touched 12.8018 earlier, the highest level since Oct. 18.

China’s yuan advanced to the strongest level in 20 years after the central bank raised the currency’s daily fixing and the nation’s trade surplus widened to the most in more than four years.

Exports (CNFREXPY) rose 12.7 percent from a year earlier in November, official data showed yesterday, compared with 5.6 percent growth in October. The People’s Bank of China raised the yuan’s reference rate by 0.17 percent to 6.1130 per dollar, the strongest since a peg to the dollar ended in July 2005. Today’s increase was the biggest since June 7.

“Strong economic data are fueling further optimism in the yuan,” said Stella Lee, president of Success Wealth Management Ltd. in Hong Kong. “Funds continue to flow into China to get exposure to yuan appreciation, as well as economic growth.”

Yuan Gain

The yuan climbed 0.2 percent to close at 6.0723 per dollar in Shanghai, China Foreign Exchange Trade System prices show. It touched 6.0713 earlier, the strongest level since the government unified the official and market exchange rates at the end of 1993.

South Africa’s rand weakened following its best one-day rally in three months. Foreign investors bought government bonds for the first time in almost two weeks on Dec. 6, which ended the longest streak of outflows on record. The currency fell 0.7 percent to 10.3927 versus the U.S. dollar.

Fund managers and electronic traders for the first time account for more than half the $5.3 trillion-a-day currency market.

Hedge funds, pension managers, central banks and smaller lenders made up 67 percent of the increase in daily trading, from about $4 trillion in 2010, the Bank for International Settlements said in its quarterly review yesterday. Their share rose to 53 percent from 48 percent, while dealer banks, which buy and sell from clients, held steady with 39 percent.

Fed Meeting

With the U.S. labor market showing signs of strengthening, the Federal Open Market Committee may start dialing down $85 billion in monthly bond buying at a Dec. 17-18 meeting rather than wait until January or March, according to 34 percent of economists in a Dec. 6 Bloomberg News survey. In a poll last month, 17 percent of economists predicted a December tapering.

“A small taper might recognize labor-market improvement while still providing the committee the opportunity to carefully monitor inflation during the first half of 2014,” Bullard, a supporter of record stimulus, said in St. Louis. “Should inflation not return toward target, the committee could pause tapering at subsequent meetings.”

The U.S. central bank should begin dialing back asset purchases as soon as possible in an economy that doesn’t need any more monetary stimulus, Fed Bank of Dallas President Richard Fisher also said today.

Labor Department reported on Dec. 6 payrolls increased by 203,000 in November, versus the median forecast in a Bloomberg News survey for a 185,000 gain.

The dollar has gained 3.4 percent this year, among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro climbed 8.1 percent while the yen tumbled 14.8 percent.

To contact the reporters on this story: Andrea Wong in New York at awong268@bloomberg.net; 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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