Dollar Reaches Highest Versus Yen Since 2008 on Fed

The dollar advanced to a six-year high against the yen as a report showed U.S. retail sales rose the most in four months in August, adding to the case for the Federal Reserve to increase interest rates.

The U.S. currency rose versus most major peers this week amid bets the Fed may accelerate its forecast for rate increases at a meeting next week and revamp rate guidance. The euro erased a ninth weekly loss after Standard & Poor’s raised Greece’s credit rating, while Brazil’s real had the worst week in a year. The ruble slid as the European Union and U.S. widened sanctions against Russia.

“Data in the U.S. has been coming in stronger, and they point to a continuation of recovery,” Sireen Harajli, a Mizuho Bank Ltd. strategist in New York, said in a phone interview. “Dollar bulls are finally being vindicated as the markets are pricing in a more hawkish tone by the Fed.”

The dollar gained 0.2 percent to 107.34 yen at 5 p.m. New York time and touched 107.39 yen, the highest level since Sept. 22, 2008. Europe’s shared currency advanced 0.5 percent to 139.15 yen.

The euro gained 0.3 percent to $1.2963 and touched $1.2979, the highest level in a week. The single currency fell on Sept. 9 to $1.2860, the lowest since July 2013.

S&P raised Greece’s sovereign rating to B with a stable outlook, from B-, citing “substantial” fiscal adjustment by the nation. A rating of B is five steps below investment grade.

Technical Level

Europe’s shared currency has been struggling to drop below $1.2788, the 38.2 percent Fibonacci retracement level of its ascent against the dollar from July 2012 to May. Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a high or low.

Bets the euro will fall against the dollar receded from the most in two years, according to data from the U.S. Commodity Futures Trading Commission. The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a rise -- so-called net shorts -- was 157,505 in the week ended Sept. 9. It was 161,423 a week earlier, the most since July 2012.

The EU expanded penalties on 15 Russian companies, including Rosneft, OAO Gazprom Neft and OAO Transneft. The U.S. broadened sanctions to include the country’s largest bank, OAO Sberbank. Russia is locked in a standoff over the fighting in eastern Ukraine. President Vladimir Putin has denied supporting pro-Russian rebels in the region.

Ruble, Real

The ruble slumped as much as 1.2 percent to 37.97 per dollar, before trading at 37.79, down 0.7 percent.

Brazil’s real dropped 1.8 percent to 2.3390 per dollar after a poll showed the presidential election was too close to call as the nation faces a recession and above-target inflation. The currency fell 4.2 percent on the week, the most since August 2013

U.S. retail sales rose 0.6 percent, matching the median forecast of 82 economists surveyed by Bloomberg, and followed a 0.3 percent increase the prior month that was stronger than previously reported, Commerce Department figures showed today.

The retail sales report “is consistent with the market’s improving optimism toward the recovery,” Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington, said in a phone interview. “While it may not send the dollar broadly higher, it’s dollar positive, especially heading into next week’s Fed meeting.”

Fed Meeting

An index of U.S. consumer confidence climbed to the highest in more than a year. The Thomson Reuters/University of Michigan preliminary consumer sentiment index increased to 84.6 in September, the most since July 2013, from 82.5 the month before. Economists surveyed by Bloomberg forecast 83.3.

The Fed, which meets Sept. 16-17, is considering the timing of rate increases and whether to revamp its public guidance on the path of rates. The central bank has said since March that interest rates would stay low for a “considerable time” after it completes a monthly bond-buying program that’s on track to end this year.

There’s a 61 percent chance policy makers will raise their benchmark to at least 0.5 percent by July 2015, futures trading showed. The likelihood was 52 percent at the end of August. The Fed has held the benchmark interest-rate target in a range of zero to 0.25 percent since 2008 to support the economy.

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major counterparts, rose 0.1 percent to 1,050.57. It climbed 1.2 percent on the week, the most since the five days ended Nov. 1, and touched 1,051.77 today, the highest since July 2013.

‘More Attractive’

“We are seeing dollar strength coming through,” said Jane Foley, a senior currency strategist at Rabobank International in London. “Even though the Fed hasn’t done anything yet, on a relative basis it makes the dollar more attractive.”

The yen lost for a fifth week, while the euro touched a 14-month low this week, amid bets the Bank of Japan and the European Central Bank will continue to add monetary stimulus to fuel economic growth.

BOJ Governor Haruhiko Kuroda told Prime Minister Shinzo Abe yesterday the central bank won’t hesitate to act if it risks missing its inflation target. In Europe, the ECB welcomes the euro’s decline because it helps spur inflation and boosts the economy, Governing Council member Luc Coene said today.

“What we are looking at now is how growth and monetary policy will diverge in 2015, rather than 2014,” Kit Juckes, a global strategist at Societe Generale SA in London, wrote in an e-mail. “And given faltering growth in Japan and a total lack of growth in Europe, that makes for a stronger dollar as long as the U.S. remains on track to end bond-buying next month and start raising rates in mid-2015.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE