NEW YORK, Nov 1: The dollar surged against the yen and rallied against other major currencies on Friday, lifted by mounting confidence in the US economic rebound and data showing yen-weakening intervention by Japan in October.
Traders fixed their sights on economic performance after a surprisingly strong third quarter US gross domestic product report this week which cheered dollar sentiment.
In the wake of the US (economic) growth numbers there is some possibility we could temporarily swing back to a focus on growth, which would be dollar bullish, particularly against the euro, said Anne Parker Mills, senior U.S. economist with Brown Brothers Harriman in New York.
Next week’s US highlight will likely be the monthly employment report, Parker Mills added.
Economists’ consensus estimates are for non-farm payrolls to rise by 50,000 and a jobless rate of 6.1 per cent in October.
The key question near term among the major currencies is whether the euro will break down through its early to mid-October lows just below $1.1550, which could precipitate a slip as low as $1.1370, Parker Mills said.
In late Friday afternoon trading in New York, the euro fell 0.4 per cent to $1.1582. Against the yen, the dollar climbed 1.06 per cent to 109.88 yen. Against the Swiss franc the dollar was at 1.3404 francs, up 0.6 per cent on the day. The pound was down 0.08 per cent at $1.6947.
Against the yen, the euro was up 0.6 per cent on the day to 127.25 yen.
Against sterling, the euro hit a six-month low as investors expect a UK interest rate hike soon given that the Bank of England’s October monetary meeting minutes showed support for such a move.
Japan spent 2.723 trillion yen ($25 billion) to try to check its currency’s rise in October, nearly half of what it spent in September, but still the third-largest yen-weakening intervention on record.
Investors expect the US government to tolerate further weakness in the Japanese currency after Treasury Secretary John Snow’s tepid comments on intervention on Thursday.
In testimony to the Senate Banking Committee, Snow avoided demanding outright that Japan no longer intervene to keep the yen subdued.
There are several factors for the strength of the dollar against the yen, said Tim Stewart, chief currency strategist at Morgan Stanley.
In a follow-through reaction to Thursday’s US data showing GDP grew 7.2 per cent, the dollar drew a modest additional bid from fairly positive consumer data on Friday.
US consumer confidence improved in October, with the University of Michigan’s consumer sentiment index rising to 89.6 in a final reading, matching economists’ forecasts and up from September’s 87.7.
The National Association of Purchasing Management-Chicago business barometer rose to 55.0 from an unexpectedly weak 51.2 in September. Economists had forecast the index at 55.5.
Overall, both numbers were pretty close to market expectations. There were no big disasters, said Tom Benfer, vice president for foreign exchange at Bank of Montreal. —Reuters