Dollar Approaches 8-Month High Versus Yen on Fed Rate Hike Bets

  • Currency gauge set for highest close since 2004 start of data
  • Dollar rally against yen may pause in short term: Ueda Harlow

U.S. Dollar, Inflation, and the Fed's Rate Path

The dollar approached an eight-month high against the yen after government reports Wednesday showed U.S. economic growth remains intact, supporting the case for an increase in interest rates.

The greenback gained against all of its Group-of-10 peers as the odds that the Federal Reserve will tighten at its December meeting rose to 100 percent, with additional moves by June climbing to 66 percent from 58 percent at the start of this week. Orders for business equipment increased in October for the fourth month in the last five, while sales also advanced, helping to extend the greenback’s gains since the Nov. 8 election.

“The dollar is underpinned by rising U.S. yields and solid economic data,” said Takuya Kanda, a senior researcher at Research Institute Ltd. “The dollar has been driven mostly by short-covering in an abnormal market with the outcome of Donald Trump becoming elected, so there is scope for fresh dollar long positions to be built.”

The U.S. currency rose 0.3 percent to 112.82 yen as of 6:53 a.m. in London, after climbing to 112.97 on Wednesday, the strongest since March. It gained 0.1 percent to $1.0539 per euro, after reaching a 2016 high of $1.0525. U.S. markets are closed for the Thanksgiving Day holiday Thursday.

The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose for a third day, adding 0.1 percent. It’s headed for the highest close in data compiled by Bloomberg starting in December 2004.

The dollar’s rally against the yen may pause in the short term after it rose above the 50 percent retracement of its slide to this year’s low from last year’s high, Naoto Ono, an analyst in Tokyo at Ueda Harlow Ltd., which provides margin-trading services, wrote in a note to clients. Still, any dip below 112 yen will likely spur strong buying, he said.

“The dollar’s rally is now driven by speculation over the quicker pace of rate hikes next year,” Ono wrote. “The focus is turning to whether there will be more than two increases as currently forecast for 2017.”

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