Dollar Advances Against Yen as Yield Difference Widens

The dollar touched a one-month high against the yen as the extra yield investors receive from U.S. securities rose to the most in three months.

The dollar gained for a third day against Japan’s currency after Goldman Sachs Group Inc. said in a report yesterday the Federal Reserve will delay a third round of bond-buying, known as quantitative easing. Dallas Fed President Richard Fisher said today additional easing could look political. The euro weakened on speculation the Swiss National Bank sold the currency amid an increase in its foreign-exchange holdings. Canada’s dollar touched the strongest in three months.

“The combination of changing expectations, and a lot of the euro-zone risks having abated,” have pushed Treasury yields higher, said Mary Nicola, a New York-based currency strategist at BNP Paribas SA. “The dollar-yen will struggle to sustain a move stronger as people are still pricing in easing.”

BNP Paribas is expecting the U.S. central bank to announce a third round of asset purchases in September, Nicola said.

The dollar rose 0.3 percent to 78.99 yen at 5 p.m. New York time after reaching 79.05, the strongest level since July 18. It advanced 0.3 percent to $1.2290 per euro. The euro rose 0.1 percent to 97.08 yen.

The difference between the yield on the 10-year U.S. benchmark and a similar maturity Japanese security widened to 100 basis points, the most since May 10. The yield on the 10-year Treasury note touched 1.82 percent, the highest since May 16.

Canada Strength

The Canadian dollar rose 0.3 percent to 98.94 cents per U.S. dollar after touching 98.87, the strongest since May 4. It traded above parity for a ninth day, amid speculation North American economic growth will sustain the nation’s exports.

Colombia’s peso dropped to its lowest level in two months after Finance Minister Juan Carlos Echeverry said the Treasury will buy $300 million this week to curb the currency’s rally.

The peso slid 0.8 percent to 1,817.80 per U.S. dollar. It has rallied 6.5 percent this year, the best performance in the world after the Chilean peso and the Hungarian forint among currencies tracked by Bloomberg.

The rand weakened for a fifth day, the longest losing streak in three months. The South African currency retreated as much as 0.7 percent and traded 0.5 percent weaker at 8.2407 per dollar.

The Dollar Index rose 0.2 percent to 82.664. Investors are betting the Fed will start a third round of asset purchases, which may debase the currency because of the additional dollars.

‘Solid Case’

“Our own view remains that there is a very solid case for additional accommodation under the Fed’s dual mandate of maximum employment and 2 percent inflation,” Jan Hatzius, chief economist at Goldman Sachs in New York, wrote in the report. “While QE3 at the Sept. 12-13 Federal Open Market Committee meeting remains possible, our best estimate is that it will take until late 2012, early 2013 before Fed officials return to balance-sheet expansion.”

U.S. assets have maintained their attraction as European Union leaders face a worsening debt crisis. China, the largest foreign holder of Treasuries, increased its holdings of the debt in June, government data released today show. Japan’s position in U.S. government debt rose by $10.4 billion, or 0.9 percent to $1.1193 trillion, Treasury data show. The country is the second largest foreign lender to the U.S.

Fisher, a non-voting member of the Federal Open Markets Committee, said the U.S. needs fiscal clarity and that weak global demand is prompting a “defensive crouch.” Stimulus is not having much impact on jobs and may seem political, he said, speaking in a CNBC interview.

Momentum ‘Uptick’

“The data from today reinforces the message we got from payrolls and retail sales yesterday, which is that the economy is not screaming for QE at the moment,” Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York, said in a telephone interview. “It suggests that there is a little bit of an uptick in momentum.”

The Swiss National Bank’s foreign-currency reserves swelled 11.3 percent in July to 406.5 billion Swiss francs ($416 billion), it said on Aug. 7. Walter Meier, an SNB spokesman in Zurich, said then that “a large part” of the increase resulted from currency purchases to defend the minimum exchange rate.

The euro tumbled 0.4 percent at about 5:50 a.m. New York time.

“I’ve heard that a bank has been working with the SNB selling euros against the pound,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “In this instance, it’s against the pound. But the selling pressure of euros in general is acting as a negative on the currency as a whole, so all the euro crosses are lower, including euro-dollar.”

Silvia Oppliger, a Zurich-based SNB spokeswoman, declined to comment.

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