The dollar strengthened the most in seven weeks against the yen on speculation improving U.S. employment data will encourage policy makers to bring an early end to asset purchases.
The U.S. currency strengthened through $1.30 per euro for the first time in three weeks after Federal Reserve minutes showed policy makers may end their $85 billion monthly bond purchases this year, halting a program that tends to debase the greenback. The yen dropped beyond 88 per dollar for the first time since July 2010 amid speculation the Bank of Japan will boost money supply to end deflation. Australia’s dollar fell for a second day after a gauge of the nation’s services declined.
“If payrolls are strong there is an increased potential that the Fed could finish its bond-buying plan earlier,” said Jane Foley, a senior currency strategist at Rabobank International in London. “That is in tune with the markets interpretation of the minutes released yesterday. The dollar is getting a bit of a boost from that.”
The dollar jumped 1.2 percent to 88.30 yen at 7:06 a.m. in New York after rising as much as 1.3 percent, the biggest increase since Nov. 15. It reached 88.33 yen, the strongest since July 15, 2010. The U.S. currency gained 0.3 percent to $1.3007 per euro after appreciating to $1.2998, the most since Dec. 12. The yen fell 0.9 percent to 114.82 per euro.
U.S. payrolls rose by 153,000 in December after increasing by 146,000 the previous month, according to the median forecast of 79 economists surveyed by Bloomberg before the Labor Department report at 8:30 a.m. New York time. The unemployment rate held at 7.7 percent, a separate survey showed.
A few members of the Federal Open Market Committee said “ongoing asset purchases would likely be warranted until about the end of 2013,” minutes of the Dec. 11-12 meeting released yesterday showed. “Several others thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013.”
“The Fed’s minutes are more hawkish than I thought they’d be,” said Yasuhiro Kaizaki, vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “Expectations are rising for better U.S. job numbers, which are supportive for the dollar.”
Treasuries fell for a fourth day today, with the benchmark 10-year yield climbing to the highest since May, as signs the world’s biggest economy is gaining momentum damped demand for the safest assets.
The dollar has gained 0.6 percent over the past month, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The yen slid 7.4 percent and the euro lost 0.1 percent.
The yen headed for an eighth week of losses against the dollar, tumbling 2.7 percent since Dec. 28. Even so, it is still about 15 percent above its 10-year average of 101.22 per dollar.
Japan’s newly installed Prime Minister Shinzo Abe said on Jan. 1 the most urgent issue for his country was to break out of currency appreciation and deflation. “Bold” monetary policy is one of the three prongs of his economic measures, he said.
The Bank of Japan will hold its first policy meeting this year on Jan. 21-22 after expanding its asset-purchase program by 10 trillion yen at its previous gathering on Dec. 20.
“We’ve probably done the most of this move in the dollar-yen,” Richard Yetsenga, head of global markets research at Australia & New Zealand Banking Group Ltd. in Sydney, said in a Bloomberg Television interview. “There are some changes domestically in Japan but I think it’s still an open question about whether they will be significant enough to really change the trajectory of Japanese monetary policy.”
The so-called Aussie weakened after service-industry indexes for Australia and China both worsened in December.
Commonwealth Bank of Australia and the Australian Industry Group said their gauge for the nation’s services decreased to 43.2 in December from 47.1 the previous month. A purchasing managers’ index of Chinese non-manufacturing industries compiled by HSBC Holdings Plc and Markit Economics fell to 51.7 from 52.1. Readings below 50 signal contraction. China is Australia’s largest trading partner.
“The Aussie is looking a bit overvalued,” said Masashi Murata, a currency strategist in Tokyo at Brown Brothers Harriman & Co. “The risk scenario for the Aussie is for the recovery in the Chinese economy to halt, and Australia’s domestic demand to deteriorate.”
The Australian dollar dropped 0.5 percent to $1.0412 after sliding 0.4 percent yesterday.