Dollar Sets Five-Month High Versus Yen Before Trump Meets Abe

Updated on
  • Yellen says Fed rate hike could come ‘relatively soon’
  • Greenback reaches strongest since December against euro

Is this Abe's Golden Moment to Secure Japan's Protection?

The dollar reached a five-month high above 110 yen before Japan’s Prime Minister Shinzo Abe meets President-elect Donald Trump in New York.

Traders are watching for any comments from Trump, who’s accused Japan of currency manipulation. He and Abe are set to meet at 5 p.m. New York time, according to a Trump adviser. The U.S. currency was buoyed after Federal Reserve Chair Janet Yellen said an interest-rate hike could come “relatively soon.”

“The fact that she didn’t push back against market expectations for a December hike is perhaps the most significant takeaway,” said Jack Spitz, managing director for foreign exchange at National Bank of Canada in Toronto. “The dollar is higher as a result.”

The dollar rose about 1 percent to 110.12 yen as of about 5 p.m. in New York, the strongest since June. The greenback gained 0.6 percent to $1.0626 per euro, touching the strongest since December. The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, reached the highest level since February. The gauge surged 2.8 percent last week, the most since September 2011.

Trump has vowed to drop a Pacific trade deal and accused Japan of manipulating its currency. If he reiterates his stance during his meeting with Abe, it will damage sentiment toward the yen, according to Kengo Suzuki, chief currency strategist at Mizuho Securities Co. in Tokyo. The president-elect has also said Japan wasn’t spending enough on U.S. military bases, stirring concern about the bilateral security relationship.

After Yellen’s remarks, traders assigned a 98 percent probability to a Fed boost in December, futures indicate.

A rate hike “could well become appropriate relatively soon if incoming data provide some further evidence of continued progress toward the Committee’s objectives,” Yellen said in the text of testimony before Congress’s Joint Economic Committee. The Fed chair also warned of the risks attached to waiting too long before raising rates.

“The biggest nuance in Yellen’s comments is a shift from worrying about being ahead of the curve to behind the curve and risks of delay,” said Eric Theoret, a currency strategist at Bank of Nova Scotia in Toronto. This is “bullish” for the dollar.