Dollar Rises to Five-Year High Against Yen; Krona Gains

The euro gained for a fourth day against the dollar as Italy sold 3 billion euros ($4.14 billion) of government bonds amid falling borrowing costs, boosting confidence in the region’s economy.

The 17-nation currency rose as European Central Bank President Mario Draghi said he sees no need for further rate cuts, according to a Der Spiegel report. The dollar retreated from a five-year high against the yen as Treasury 10-year bond yields fell for the first time in six days. Sweden’s krona strengthened after retail sales increased more in November than economists forecast.

“A healthy Italian bond sale underscores that crisis in the euro zone is fading in the rear-view mirror,” Jonathan Lewis, the New York-based chief investment officer at Samson Capital Advisors LLC, wrote in a client note. “More hawkish statements from ECB members are signaling that Europe’s central bank may actually raise interest rates in 2014.”

The euro added 0.4 percent to $1.3801 per dollar at 5 p.m. New York time, after increasing to $1.3893 on Dec. 27, the strongest since October 2011. The shared currency rose 0.4 percent to 145.09 yen. The dollar was little changed at 105.15 yen after touching 105.41, the highest since October 2008.

Futures Positions

Hedge funds and other large speculators added to bets that the euro will rise versus the dollar as of Dec. 24 for a four straight week. The difference in the number of wagers on a gain in the shared currency compared with those on a decline, or net longs, totaled 32,172. Investors were short the euro as recently as Nov. 29.

Futures traders increased bets that the yen will decline against the greenback to their highest level since July 2007. The difference in the number of wagers on a decline in the yen compared with those on a gain, or net shorts, was 144,000, compared with net shorts of 130,223 a week earlier.

The greenback comprised 61.4 percent of total allocated foreign exchange reserves in the third quarter, down from 61.8 percent in the second quarter, according to International Monetary Fund data. The euro had the second-biggest allocation, with 24.2 percent, up from 23.9 percent.

The Swiss franc’s 2.1 percent gain against the greenback led its 16 major peers in December, while the yen lost 2.6 percent, the biggest loser.

Annual Results

South Africa’s rand was the worst performer in 2013, having lost 18.7 percent. Japan’s currency has weakened 17.5 percent, the second worst performance. The euro and Danish krone were the biggest winners, having rallied 4.6 percent.

The yen and Brazil’s real were the worst performers in the fourth quarter, dropping 6.5 percent and 6.1 percent respectively.

Among the 31 most-traded currencies tracked by Bloomberg, the Israeli shekel has gained the most versus the dollar this year at 7.4 percent. The Argentine peso lost the most at 24.6 percent.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, has risen 3.4 percent this year, the most since an 8.9 percent advance in 2008.

The Institute for Supply Management’s manufacturing index fell to 56.9 in December, after it unexpectedly accelerated in November at the fastest pace in more than two years, according to a Bloomberg survey of economists before the Jan. 2 report.

Dollar Support

“As long as the data flow continues to be positive and risk appetite is positive, you get the dollar supported,” said Emma Lawson, a senior currency strategist at National Australia Bank Ltd. in Sydney.

Italy’s government bonds advanced, pushing 10-year yields down from the highest level in three weeks.

Italy sold notes due in December 2018 at an average yield of 2.71 percent, down from 2.89 percent at a previous auction in October. The extra yield that investors demand to hold Italian 10-year bonds instead of German bunds fell to the lowest since 2011.

The Italian bond sale has “definitely helped the euro,” Sireen Harajli, a strategist at Mizuho Bank in New York, said in a phone interview. “With less liquidity in the market, you’re seeing much more exaggerated moves than usual.”

Treasury 10-year note yields dropped three basis points to 2.97 percent in New York.

Fed Policy

The Fed will reduce its bond-purchase stimulus in $10 billion increments over the next seven meetings before ending the program in December 2014, according to the median estimate of economists surveyed by Bloomberg this month.

Sweden’s krona climbed against all of its 16 major peers after a report showed retail sales rose 0.9 percent last month from October. The median estimate in a Bloomberg survey was for a 0.4 percent increase.

“We’ve had some very weak data coming out of Sweden recently so today’s upside surprise to retail sales will certainly be very welcome,” said Christian Lawrence, a strategist at Rabobank International in London. “We had a continued selloff in the second half of the year but I think a lot of negative news is priced in” to the krona.

The krona advanced 1.4 percent to 6.4243 per dollar after touching 6.4084, the strongest since Oct. 31. It appreciated 1 percent to 8.8666 per euro.

The Brazilian real fell on speculation that policy makers will limit borrowing cost increases to shore up growth and reduce the risk of cuts to the country’s credit ratings. The currency depreciated 0.9 percent to 2.3597 per dollar after earlier slipping 1.2 percent, the most since Dec. 20.

Turkey’s lira rose versus all except one of its 31 most-traded counterparts on bets tensions between the country’s government and the judiciary are easing, and as the central bank sold $600 million for lira. The currency climbed 1.5 percent to 2.1235 per dollar after increasing 1.6 percent, the most since Sept. 18.

The dollar has risen 3.4 percent this year versus nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro has advanced 8.7 percent, the biggest gain within the gauge. The yen is the worst performer, having fallen 16.5 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: Robert Burgess at bburgess@bloomberg.net

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