Dollar Rises With U.S. Yields Before Fed Minutes; Pound Climbs

The dollar rose as Treasury yields increased from almost six-month lows before the release of minutes from the Federal Reserve’s April meeting.

The U.S. currency gained against the euro amid concern the European Parliament elections starting tomorrow may shift the balance of power in the 18-nation region. The pound rallied as retail sales jumped more in April than economists forecast and the Bank of England said the case for interest-rate increases is becoming more balanced. The yen reached a three-month high earlier after the Bank of Japan refrained from expanding stimulus. Russia’s ruble rose to the highest in four months after a debt auction succeeded for a second week.

“You still have to hold on to the longer-term view that dollar-yen will eventually be higher on the ground that in the next six months BOJ will be easing again, and the Fed’s going in the opposite direction,” Richard Franulovich, chief currency strategist for the northern hemisphere at Westpac Banking Corp. in New York, said in a phone interview. “One thing to look out for in the EU election is Greece -- they want to rewrite the austerity package.”

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, rose 0.2 percent to 1,010.64 as of 12:34 p.m. New York time.

Price Levels

The U.S. currency added 0.3 percent to $1.3662 per euro. The yen dropped 0.1 percent to 101.46 per dollar, after reaching 100.82, the strongest level since Feb. 5. Japan’s currency appreciated 0.1 percent to 138.63 per euro, after touching 138.15, the most since Feb. 6.

Treasury 10-year note yields rose three basis points, or 0.03 percentage point, to 2.54 percent. The yield reached 2.47 percent on May 15, the lowest level since October.

South Africa’s rand rose 0.3 percent to 10.4144 per dollar. The country’s inflation rate accelerated to 6.1 percent in April, exceeding the central bank’s maximum 6 percent target and bolstering the case for higher interest rates.

The pound gained versus 15 of its 16 major peers as U.K. retail sales increased for a third month in April, stoking speculation the Bank of England will move closer to raising interest rates as the economy strengthens.

U.K. Economy

Sales including auto fuel surged 1.3 percent from March, when they rose an upwardly revised 0.5 percent, the Office for National Statistics said in London. That compared with a forecast for an increase of 0.4 percent, according to the median estimate in a Bloomberg News survey.

Minutes from this month’s central bank monetary policy meeting said the interest-rate decision was becoming “more balanced” for some of the nine members. However, all agreed that they needed to see “more evidence of slack reducing” before it would be time to increase the benchmark interest rate from a record-low 0.5 percent.

The pound rose for a fifth day versus the dollar, strengthening 0.3 percent to $1.6883 after climbing to $1.6996 on May 6, the highest since August 2009. Sterling appreciated as much as 0.6 percent to 80.86 pence per euro, its strongest level since January 2013.

The euro weakened against most of the 31 major peers before the elections to EU Parliament take place in the next three days. Greece’s main opposition party Syriza’s leader Alexis Tsipras has billed the vote as a “referendum” as he seeks support for plans to scrap austerity measures attached to the country’s 240 billion-euro ($329 million) international bailout.

European Government

The European Union’s 400 million voters may be about to determine the chief executive of the world’s largest economic bloc for the first time. For that to happen, national leaders such as German Chancellor Angela Merkel and French President Francois Hollande will have to renounce their right to pick the head of the European Commission, the EU’s executive arm.

The common currency has lost 1 percent in the past month, the third biggest loser among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 1.3 percent, while the dollar was little changed.

The ruble strengthened 0.4 percent to 40.1283 against the central bank’s dollar-euro basket. The ministry sold the bonds at an average yield of 8.84 percent in its first offering of the notes since Feb. 26. Russia returned to the bond market last week after a string of auctions was canceled amid increasing tension in Ukraine.

New York Fed President William Dudley told the New York Association for Business Economics yesterday that the pace of eventual interest-rate rate increases “will probably be relatively slow,” depending on the economy’s progress and financial markets.

Fed Policy

The Fed reiterated on April 30, after its last policy meeting, that it will keep the key rate target near zero for a “considerable time” once it concludes the bond-purchase program it has also used to fuel growth.

The BOJ said it will continue buying about 7 trillion yen ($70 billion) of sovereign debt a month at the conclusion of a two-day meeting today. Policy makers will introduce additional stimulus by the end of their July gathering, according to 44 percent of economists surveyed by Bloomberg News before today’s BOJ meeting.

“Japan’s economy is expected to continue a moderate recovery as a trend,” the BOJ said in a statement accompanying the decision. Quantitative easing “has been exerting its intended effects,” it said.

It was the first time the central bank said its stimulus is working, according to Marcel Thieliant, a Singapore-based economist at Capital Economics.

“The optimistic tone of recent BOJ communication suggests that the chances of additional stimulus being announced as soon as July have shrunk substantially, but we still think that more easing will eventually be required,” Thieliant wrote in a note to clients. The additional stimulus will lead the yen to weaken toward the end of the year, he said.

The yen will depreciate to 108 per dollar at the end of 2014, according to the median estimate of analysts in a Bloomberg survey.

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