Dollar Rises Versus Yen as Policy Outlook Diverges; Baht Falls

The dollar rose to almost a five-year high against the yen as traders bet on a divergence in monetary policy with the Federal Reserve paring stimulus while the Bank of Japan continues unprecedented easing.

The U.S. currency strengthened versus most of its major peers as reports showed orders for durable goods and new-home sales rose more than forecast in November. The yen weakened for a second day as the Nikkei 225 Stock Average topped 16,000 for the first time since 2007 and China conducted operations to ease a cash crunch, damping demand for Japan’s currency as a haven. Thailand’s baht dropped to a three-year low versus the dollar.

“Durable goods and new-home sales were well above expectations,” Steven Englander, global head of Group of 10 currency strategy at Citigroup Inc., wrote in an e-mail. “With most investors now focused on 2014, it may be Jan. 2, 3 or even Jan. 6 before active trading resumes. But with such good data and so little reaction, the New Year may start with a bang.”

The dollar gained 0.2 percent to 104.30 yen as of 2 p.m. in New York. It rose to 104.64 yen on Dec. 20, the most since October 2008. The U.S. currency appreciated 0.2 percent to $1.3673 per euro. The 17-nation common currency was little changed at 142.62 yen.

Baht Drop

Thailand’s baht fell to a three-year low amid concern political unrest will persist. Protesters swarmed two buildings in Bangkok yesterday in an attempt to block candidates from registering for the Feb. 2 national vote, the latest in a series of demonstrations aimed at toppling Prime Minister Yingluck Shinawatra, who dissolved parliament Dec. 9.

The baht reached 32.81, the weakest level since June 7, 2010, data compiled by Bloomberg show.

The Turkish lira strengthened for the first time in six days as BlackRock Inc., the world’s biggest money manager, said yesterday it has added to positions in the nation’s stocks.

The lira climbed 1 percent to 2.0774 per dollar.

China’s overnight repurchase rate, a gauge of funding availability in the banking system, tumbled as much as 1.18 percentage points to 4.07 percent, according to a weighted average by the National Interbank Funding Center.

The yuan traded at almost its strongest level in 20 years on speculation the widening yield advantage of Chinese assets will attract capital inflows.

Yuan Strength

The currency closed at 6.0714 per dollar in Shanghai, China Foreign Exchange Trade System prices show. That was little changed from 6.0702 yesterday, the strongest level since the government unified the market and official exchange rates at the end of 1993. The currency can diverge a maximum 1 percent from the PBOC’s daily fixing.

U.S. bookings for goods meant to last at least three years rose 3.5 percent after a 0.7 percent drop the prior month, a Commerce Department report showed in Washington. The median estimate of 75 economists surveyed by Bloomberg called for a 2 percent advance.

Purchases of new U.S. homes were at almost five-year high.

Sales declined 2.1 percent to a 464,000 annualized pace, following a revised 474,000 rate in October that was the strongest since July 2008, figures from the Commerce Department showed. The median forecast of 75 economists surveyed by Bloomberg called for 440,000.

Fed Plans

The Fed said Dec. 18 it plans to cut monthly asset purchases in January to $75 billion from $85 billion, while reinforcing its assurance that interest rates will remain low for an extended period. Policy makers will probably reduce bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, economists said in a Bloomberg survey on Dec. 19.

Fed Bank of Dallas President Richard Fisher, who will be a voting member of the policy-setting committee next year, said yesterday the U.S. economy is on an upward trajectory, and that he argued for a $20 billion reduction in the Fed’s monthly bond purchasing last week.

Japan’s central bank is buying more than 7 trillion yen ($70 billion) in government bonds each month in an effort to end 15 years of deflation. BOJ officials see significant scope to boost bond purchases if necessary to achieve their 2 percent inflation target, according to people familiar with the discussions.

Yen Levels

“Dollar-yen should be very heavily driven by the relative monetary policy outlook,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “We’ve had a squeeze in dollar-yen which seems to be linked to the Nikkei, which has produced some spillover U.S. dollar demand elsewhere.”

The Nikkei rose to as high as 16,029.65 before closing at 15,889.33.

The yen tumbled 15.2 percent this year, the most among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 4 percent, while the euro was the best performer, jumping 8.3 percent.

“You might see people trying to chase that short-yen trade again going into the new year,” Robert Sinche, global strategist at Pierpont Securities Holdings LLC in Stamford, Connecticut, said in a phone interview. “It’s a 100, 105 trading range now, so buying it up here is kind of dicey, into these markets.”

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