Dollar Reaches Five-Year High Against Yen; Turkish Lira Slumps

The dollar reached a five-year high against the yen on optimism U.S. economic growth will outperform Japan’s next year.

The yen declined for an eighth week against the greenback after the Bank of Japan retained its plan to add 60 trillion yen ($574 billion) to 70 trillion yen a year to the monetary base. The Bloomberg Dollar Spot Index fell from a three-month high reached after the Federal Reserve said this week it would cut monthly bond purchases by $10 billion as economic growth improves. Turkey’s lira weakened to a record as the government purged police leadership to fight against a corruption probe.

“Dollar will perform relatively well in 2014,” Charles St-Arnaud, Canadian economist and foreign-exchange strategist at Nomura Securities International in New York, said in a phone interview. “You should start to see better growth numbers.”

The dollar lost 0.1 percent to 104.10 yen at 5 p.m. New York time after appreciating to 104.64, the strongest level since October 2008. The U.S. currency dropped 0.1 percent to $1.3673 per euro after appreciating to $1.3625, the most since Dec. 6. The yen climbed 0.1 percent to 142.32 per euro.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, slipped 0.2 percent to 1,021.34 after reaching 1,025.68, the highest level since Sept. 13.

Real Weakness

Brazil’s real fell for a third day after the central bank said it’ll cut back on intervention to support the currency.

Brazil will auction $200 million of foreign-exchange swaps on trading days from January through at least the end of June, down from offerings of $500 million four days a week this year.

The real depreciated 1.3 percent to 2.3874 per U.S. dollar, the worst performance among 24 developing-nation counterparts tracked by Bloomberg.

Most Asian currencies weakened on speculation inflows will slow as the Fed begins curbing stimulus that has fueled demand for emerging-market assets.

Malaysia’s ringgit dropped 0.5 percent to 3.2880 per dollar, the Thai baht fell 0.4 percent to 32.61 per dollar, while Indonesia’s rupiah was little changed after dropping to a five-year low of 12,255.

Euro Reacts

The euro gained against the greenback even after Standard & Poor’s cut the European Union’s long-term rating to AA+ with a stable outlook. The region’s financial profile has deteriorated and “cohesion” among the member states has lessened, the rating company said.

“It seems to have been a short-term negative for the euro,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “That said, the times when ratings downgrades had a lasting impact on foreign-exchange rates seem to be a thing of the past.”

European Central Bank President Mario Draghi said Dec. 16 that there are risks from long periods of low inflation and policy makers have tools to address this, including “several other instruments on the liquidity front.”

“Euro-dollar will gradually grind lower” to less than $1.30 in a year, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “Next year, the risk is that the ECB may move to boost liquidity” while the Fed keeps reducing stimulus, he said.

BOJ Meeting

The yen has dropped 0.9 percent since Dec. 13, extending its decline during its eight-week losing streak to 6.7 percent. The U.S. economy will expand 2.6 percent in 2014, while Japan’s gross domestic product will grow 1.6 percent, according to Bloomberg News surveys of economists.

BOJ policy makers said after their two-day meeting they will maintain stimulus until annual inflation is stable at 2 percent. The BOJ will examine the risks and make policy adjustments as needed, according to a statement. Most economists surveyed by Bloomberg anticipate the central bank will boost stimulus after the national sales tax is raised in April.

“What you’ve got to recognize is that the justification for tapering is the assumption that the macroeconomic fundamentals in the U.S. are improving,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. The dollar “looks like it’s still got a bit further to go” against the yen, he said.

Turkey’s lira dropped as much as 1.2 percent to 2.0982 per dollar, the weakest since at least 1981. The currency also dropped to a record 2.8681 per euro.

Political Risk

“Political risk has increased considerably,” said Melih Onder, chairman of Logos Portfoy Yonetimi AS, which manages the equivalent of $90 million. “It took a few days for foreign investors to digest what has happened. This selloff could continue for as long as 10 days.”

The government dismissed 14 department chiefs at the national police, NTV television reported, in addition to some 50 yesterday, according to a Bloomberg HT report. The dismissals came after police detained dozens of people, including the head of a state bank and the sons of three cabinet ministers, in an inquiry into graft.

U.S. gross domestic product rose at a 4.1 percent annual rate in the third quarter, the fastest pace since the final three months of 2011, according to a Commerce Department report today. Data due Dec. 23 will show personal income and spending both increased in November, Bloomberg surveys show.

The Fed said after its Dec. 17-18 meeting that it would trim monthly asset purchases to $75 billion from $85 billion. At the same time it reinforced an assurance that interest-rate increases are far off by saying the benchmark rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent.”

The central bank has kept the target for the federal-funds rate at a range of zero to 0.25 percent since December 2008.

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