Dollar Climbs Ahead of U.S. Sentiment, Home Data; Yen Halts Gain
The Dollar Index climbed amid prospects improving U.S. fundamentals will prompt the Federal Reserve to taper its monthly bond purchases of $85 billion. The yen snapped a three-day advance versus the euro as Asian stocks rose and after the Bank of Japan estimated a key component of funds in the nation’s economy reached a record amid unprecedented stimulus.
“This is an unsustainable pace of Fed purchases, and we have to accept that’s not good monetary policy, so I think tapering does start in the fourth quarter this year,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney, referring to a reduction in U.S. monetary stimulus. “On a medium-term basis, the dollar is a buy.”
The greenback jumped 1 percent to 101.97 yen as of 6:37 a.m. in London from yesterday and added 0.1 percent to $1.2923 per euro. The yen slid 0.9 percent to 131.78 per euro.
The Dollar Index, which Intercontinental Exchange Inc. uses to track the greenback against currencies of six major U.S. trading partners, added 0.1 percent to 83.799. Markets in the U.S. and U.K. were closed yesterday for public holidays.
The MSCI Asia Pacific Index of shares advanced 0.4 percent, snapping five days of losses and sapping demand for lower-yielding, safer assets.
The Conference Board’s index of U.S. consumer sentiment probably climbed to 71 this month, the highest since November, from 68.1 in April, according to the median estimate of economists surveyed by Bloomberg News. The S&P/Case-Shiller index of property values in 20 U.S. cities may have risen 10.2 percent in March from a year earlier, the biggest jump since April 2006, economists forecast.
The dollar has strengthened 5.3 percent this year, the biggest gainer among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen has fallen 12 percent, while the euro has climbed 2.9 percent.
“I expect to see further yen weakness as economic indicators improve in the U.S. and other countries,” said Yuji Kameoka, the chief currency strategist at Daiwa Securities Co. in Tokyo, Japan’s second-biggest brokerage. “Japan’s monetary easing will underpin the yen’s decline.”
The BOJ estimates that deposits it holds in custody for financial companies will rise to a record 72.4 trillion yen ($710 billion) today. The current-account balance is a part of the monetary base, which the central bank plans to double in two years as it buys more than 7 trillion yen of government bonds every month to end 15 years of deflation.
BOJ policy board member Ryuzo Miyao said today that the central bank has taken all necessary easing steps for the time being. The nation’s economy has started to pick up, he said at the Foreign Correspondents’ Club of Japan in Tokyo today.
Separate data from the central bank showed today prices that companies pay for services fell 0.4 percent in April from a year earlier, compared with the 0.2 percent decline estimated by economists. The corporate-services-price index is used to measure economic conditions and referred to for monetary-policy decisions, according to the central bank’s website.
“The BOJ is having difficulty executing monetary policy as is,” said Westpac’s Rennie. “It would be extremely unlikely that we see further monetary-policy stimulus going forward.”
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