The dollar rose to a nine-month high against the yen before U.S. reports next week forecast to show growth in the world’s biggest economy is gathering pace while deflation persists in Japan.
The yen weakened as Japan’s consumer prices decreased, fanning speculation the central bank will expand monetary easing. The dollar gained against most major currencies after Federal Reserve Chairman Ben S. Bernanke cast doubt about a third round of asset purchases. The euro declined a third day since the European Central Bank’s bank-loan program as a German report showed retail sales unexpectedly fell.
“There’s been diminished expectations of more quantitative easing,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “Commodity currencies have all come down, equities are in the red, so it’s got a slightly more risk- off feel to it.”
The dollar appreciated 0.9 percent to 81.81 yen at 5 p.m. New York time after it climbed to 81.87, the highest level since May 26. Japan’s currency was little changed at 107.97 per euro. The 17-nation euro decreased 0.9 percent to $1.3198.
Currencies of commodity-exporting countries were among the biggest losers today as raw materials prices dropped.
The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials fell 1 percent. Oil, which reached $110.55 a barrel yesterday, the highest level since May, decreased 1.9 percent.
South Africa’s rand fell 1.1 percent to 7.5208 per dollar after reaching 7.4025 Feb. 29, the strongest level since September. Norway’s krone dropped 0.6 percent to 5.6075.
UBS AG recommends closing out of short euro-Canadian dollar positions, with the pair weakening 2.6 percent in the past three days. The euro reached C$1.3028 today, the lowest level since Feb. 16.
“We continue to favor further downside in euro-Canada, but will perhaps instead look to move into a different structure, given the sharp move in spot over the past three days,” Chris Walker, a currency strategist at UBS in London, wrote in a note to clients.
He recommends investors enter short euro-U.S. dollar and pound-dollar positions. A short is a bet the price of an asset will drop.
Sterling rose for a sixth day against the euro, the longest stretch since November 2010, as an industry report showed an index for U.K. construction rose in February to an 11-month high, boosting speculation the nation will avoid a recession. The pound gained 0.1 percent to 83.36 pence per euro after reaching 83.14, the strongest level since Feb. 20.
‘Far From Normal’
Intercontinental Exchange Inc.’s Dollar Index (DXY), used to track the greenback against the currencies of six major U.S. trading partners, gained 0.8 percent to 79.434. The gauge increased 1.3 percent this week, the most since the five days ended Jan. 6.
Bernanke said yesterday elevated unemployment and subdued inflation mean interest rates are likely to stay low, without offering any sign that the economy needed an additional monetary boost.
The Fed chairman told a Senate hearing that there were “positive developments” in the job market while saying it’s still “far from normal.” He said the inflationary impact of higher gasoline prices was likely to be temporary.
The Fed bought $1.969 billion of Treasuries today as part of its program to replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in an effort to reduce borrowing costs further and counter risks of a recession. The central bank, which next meets March 13, bought $2.3 trillion of securities in two rounds of quantitative easing from December 2008 until June 2011.
“Bernanke yesterday described policy as highly accommodative,” Jane Foley, a senior currency strategist at Rabobank International in London, wrote in an e-mailed report today. The dollar, she wrote, “is benefiting on speculation that the Fed may not proceed with additional QE.”
The Institute for Supply Management’s non-manufacturing index was at 56.1, almost the highest in a year in February, according to the median forecast in a Bloomberg News survey of economists before the report from the Tempe, Arizona, group on March 5. Readings above 50 signal expansion. Other U.S. reports next week may to show companies hired more workers.
Japan’s consumer prices excluding fresh food dropped for a fourth month in January, decreasing 0.1 percent from a year earlier, the statistics bureau said. The Bank of Japan set an inflation goal of 1 percent on Feb. 14 and added to an asset- purchase fund that targets notes maturing within two years. Policy makers next meet March 12-13.
“There are expectations in markets for further easing by the Bank of Japan (8301) at its next meeting, leading to some yen selling,” said Toshiya Yamauchi, a senior currency analyst in Tokyo at Ueda Harlow Ltd., which provides foreign-exchange margin-trading services. “The CPI number was still negative, far away from the BOJ’s target.”
The yen has weakened 6.8 percent in the past three months in the worst performance among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro was the second-biggest loser, dropping 3.2 percent. The dollar has declined 1.7 percent.
Futures traders are betting that the yen will fall against the dollar for the first time since June, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on a decline in the yen compared with those on a gain -- so-called net shorts -- was 1,203 on Feb. 28, compared with net longs of 17,257 a week earlier.
The euro weakened versus the dollar after Germany’s statistics bureau said retail sales adjusted for inflation and seasonal swings fell 1.6 percent in January. Economists forecast a gain of 0.5 percent, a Bloomberg News survey showed.
Euro-area retail sales dropped for a third month in January, the European Union’s statistics office will say on March 5, another Bloomberg survey showed. The ECB (EURR002W) will keep its benchmark interest rate at a record low 1 percent on March 8, according to a separate survey.
European leaders agreed this week to provide capital faster for the planned permanent bailout fund in a concession to international pressure to strengthen the currency bloc’s defenses against the debt crisis.
“Markets have pulled back after the sugar rush we’ve had from the second longer-term refinancing operation,” Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “There is still a great deal of uncertainty, which has been highlighted by the market as we start to see the euro under pressure again.”
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