The yen fell for a sixth week against the dollar, its longest losing streak in three years, as faster U.S. economic growth boosted Treasury yields and the Bank of Japan indicated plans for further stimulus.
The dollar rose against most of its major peers after the Federal Reserve said labor-market conditions “have improved further,” diminishing forecasts for further stimulus. Norway’s krone dropped against its major counterparts after the central bank unexpectedly cut interest rates. U.S. housing data next week may further underpin a strengthening recovery scenario.
“The impetus from dollar-yen strength has come from the Treasuries market,” said Ray Attrill, a senior currency strategist at BNP Paribas SA in New York. “You had quite an explosive selloff in Treasuries, but, at the same time, the economic news has remained good and risk sentiment has remained positive.”
The yen dropped 1.2 percent to 83.43 per dollar in the five days ended March 16 in New York. The six-week losing streak matches one ended March 2009. The Japanese currency fell 1.6 percent against the euro to 109.95 yen. The shared currency added 0.4 percent to $1.3175.
Japan’s currency slid 5.6 percent during the past month in the worst performance among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar appreciated 0.4 percent, and the euro advanced 0.8 percent.
Futures traders increased their bets that the yen will decline against the U.S. dollar. 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 42,380 on March 13, compared with net shorts of 19,358 a week earlier, figures from the Washington-based Commodity Futures Trading Commission show.
The yen reached its weakest level in almost 11 months versus the dollar after Bank of Japan Governor Masaaki Shirakawa indicated on March 13 that the central bank will keep using monetary policy as a tool to tackle deflation.
The Japanese currency rebounded in the final two days of the week as investors wagered the largest four-day decline since November had happened too quickly and core inflation and consumer confidence in the U.S. were weaker than expected.
The 14-day relative strength index for the yen against the dollar shows that even after gains in the past two days, the Japanese currency remains oversold. The measure reached 27.8 yesterday, below the 30-level that traders see as a sign that an asset may change direction.
The extra yield investors receive for holding two-year Treasuries instead of Japanese debt widened to 24 basis points, or 0.24 percentage point, the most since July 28, increasing the attractiveness of dollar assets. There is a “relatively high” correlation between the two-year spread and the dollar-yen exchange rate, Bank of Japan Governor Masaaki Shirakawa has said.
The yield on the 10-year Treasury note increased for eight straight days in the longest streak since 2006. It touched 2.36 percent yesterday, the highest level since Oct. 28.
“The focus of the currency market has shifted away from equities to fixed income as the primary metric of movement,” said Boris Schlossberg, director of research at online currency trader GFT Forex in New York.
The Dollar Index (DXY), which Intercontinental Exchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners, touched an eight-week high of 80.738 on March 15. It fell 0.3 percent this week.
ICE reported record daily volume on March 14 in the Dollar Index. Contracts traded reached 82,689, with a notional value of more than $6.6 billion. That compares with the average daily in February of 29,073 contracts and the previous volume record of 81,814 set in June 2011.
Fed policy makers raised their assessment of the economy as the labor market gathered strength, and refrained from additional steps to lower borrowing costs, reducing expectations of further stimulus measures that would debase the currency.
Housing starts and existing and new home sales may show that the market expanded last month. Housing starts rose by 0.1 percent in February, the second consecutive increase in the Commerce Department data, according to a Bloomberg News Survey. Other surveys show an increase in existing home sales of 0.7 percent and that new home sales advanced by 1.3 percent.
The dollar pared weekly gains against most its major counterparts after a report yesterday showed a gauge of consumer prices excluding food and energy rose less than forecast.
The U.S. consumer-price index climbed 0.4 percent, matching the median forecast of economists surveyed by Bloomberg News, the Labor Department reported yesterday in Washington. The core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected.
“If we’d had a surprise to the upside, people would have felt more convicted in paring back easing expectations and then it comes in a little soft on core CPI and people may worry they’ve gotten ahead of themselves,” said Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut.
Norway’s krone dropped to a five-week low of 5.8393 versus the dollar March 15 as policy makers unexpectedly lowered interest rates on March 14. The Scandinavian currency fell 0.5 percent this week.
The central bank reduced interest rates 0.25 percentage point to 1.5 percent as the bank has stepped up its efforts to contain the commodity-backed krone’s ascent after it touched a nine-year high this month. Norges Bank was forecast leave its benchmark rate at 1.75 percent, according to 14 of 16 economists surveyed by Bloomberg.
Norway’s central bank Governor Oeystein Olsen said investors should be aware that the krone may weaken and that it’s a riskier investment than the Swiss franc.
“At some point there is a risk for investors that the krone weakens,” Olsen said in an interview in Oslo yesterday.
The Swiss currency rose 0.4 percent to 91.56 centimes per dollar.
Switzerland’s franc gained after the central bank predicted the economy will expand 1 percent this year, twice as much as its previous estimate. Policy makers led by interim Chairman Thomas Jordan, maintained their ceiling for the currency at 1.20 francs per euro, and pledged to defend the cap with their “utmost determination.”
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