The dollar strengthened against the yen for a third day, the longest run of gains in a month, as speculation increased that U.S. lawmakers may reach a compromise to avert an unprecedented default.
The Japanese currency fell against all of its major peers as the White House endorsed a short debt-limit increase with no policy conditions attached, signaling potential support for a plan by House Republican leaders. Sweden’s krona and Norway’s krone slid as data showed inflation pressures eased in the two Nordic economics, cooling bets interest rates will have to rise.
“The optimism around a potential government deal is helping to support the dollar versus the yen,” Eric Viloria, senior currency strategist at Gain Capital Group LLC in New York, said in a phone interview. “Markets are looking a bit optimistic, and you can see that with this relief rally.”
The greenback climbed 0.8 percent to 98.16 yen at 5 p.m. New York time in the third daily gain, the longest stretch since Sept. 5. The U.S. currency touched 98.27 yen, the highest since Oct. 1. The dollar was little changed at $1.3520 per euro. The Japanese currency weakened 0.8 percent to 132.71 per euro.
The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 major peers, rose to 1,015.74, the highest level since Sept. 27, before trading at 1,013.60.
The JPMorgan Global FX Volatility Index fell to 8.64 percent, the least on a closing basis since May 8. The 2013 average is 9.37 percent.
The Swedish krona dropped versus most major currencies as a report in Sweden showed headline inflation unexpectedly held at 0.1 percent, after a Bloomberg survey forecast faster price growth. The krona lost 0.6 percent to 8.7933 per euro.
Norway’s krone fell against the krona and the euro as underlying inflation in the country slowed more than analysts estimated in September to 1.7 percent. The currency declined 0.7 percent to 8.1655 per euro and touched 8.2037, the weakest since Nov. 29, 2010. It fell 0.2 percent versus Sweden’s currency.
Policy makers at both nations’ central banks last month kept rates unchanged and signaled higher rates next year.
Brazil’s real climbed versus all of its 16 most-traded peers after the country’s central bank raised its main interest rate yesterday for a fifth straight time, the longest stretch of increases in the world. The rate is now 9.5 percent. The currency gained 1.2 percent to 2.1804 per dollar and reached 2.1693, the strongest level since June.
Mexico’s currency rose amid bets a deal would be reached to raise the debt ceiling in the U.S., the nation’s biggest trade partner. The peso gained 0.7 percent to 13.0939 per dollar.
House Speaker John Boehner proposed extending the federal debt limit until Nov. 22 without policy conditions as a way to shift debate back to a government-spending bill. The bill wouldn’t end the partial shutdown of the government, which began Oct. 1 after Republicans insisted on changes to the 2010 health-care law.
Boehner told reporters the House wants to “offer the president today the ability to move.” Still to be determined is whether rank-and-file House members will agree to the leadership’s proposal. House Republicans met with Obama at the White House to discuss the proposal.
U.S. borrowing authority lapses on Oct. 17. Jay Carney, the White House press secretary, said President Barack Obama would support a short increase in the debt limit with no “partisan strings attached,” though he prefers a longer extension.
“It looks like we are going to avoid the situation where we’ll see an actual default, which is giving the dollar relief,” Sireen Harajli, a foreign-exchange strategist at Mizuho Bank in New York, said in a phone interview. “Both parties are aware that it’s not in anybody’s best interest for the U.S. to default on its debt.”
Treasury Secretary Jacob J. Lew warned Congress today that uncertainty over whether it will raise the debt ceiling is “beginning to stress the financial markets” and trying to time an increase to the last minute “could be very dangerous.” Lew testified to the Senate Finance Committee.
The yen has lost 10 percent this year, the worst performance among 10 developed-market currencies tracked by Bloomberg Correlation Weighted Indexes. The dollar climbed 3.1 percent, while the euro gained 5.9 percent.
Bank of Japan Governor Haruhiko Kuroda said the bank will do what is necessary to defeat deflation, while declining to discuss specific additional measures it might take. The policies aren’t aimed at weakening the yen and are intended solely at bolstering the domestic economy, he said at the Council on Foreign Relations in New York
Japanese investors sold a net 2.2 trillion yen of overseas bonds in the week ended Oct. 4, the most on record, figures from the Ministry of Finance showed today in Tokyo.
Trading in over-the-counter foreign-exchange options totaled $48 billion, from $31 billion yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg. Volume in options on the dollar-yen exchange rate amounted to $10.5 billion, the largest share of trades at 22 percent. Options on the dollar-Chinese-yuan rate totaled $9.2 billion, or 19 percent.
Dollar-yen options trading was 87 percent more than the average for the past five Thursdays at a similar time in the day, according to Bloomberg analysis. Dollar-yuan options trading was 357 percent above average.