Dollar rises to 5-year high vs. yen as Fed trims bond buying

Currency Gainers

The pound, South Africa’s rand, and Mexican peso led gains among the major currencies.

“The dovish forward guidance is going to drive the front end of the curve stay fairly low,” Sebastien Galy, a New York- based senior foreign-exchange strategist at Societe Generale SA, said in a phone interview. The curve refers to the difference between short- and long-term interest rates.

The Fed was forecast to start curtailing its monthly bond purchases this week after unexpectedly refraining from reducing them in September, according to 34% of economists surveyed Dec. 6 by Bloomberg, an increase from 17% in a Nov. 8 survey.

Housing starts jumped 22.7% to a 1.09 million annualized rate, exceeding all forecasts of economists surveyed by Bloomberg and the most since February 2008, data from the Commerce Department showed today in Washington. Permits for future projects held at almost a five-year high, indicating the pickup will be sustained into 2014.

November payrolls grew by 203,000 positions, exceeding forecasts for a 185,000 increase and the U.S. jobless rate fell to 7%.

The yen fell earlier as the nation’s trade deficit widened to a record.

Japan’s Exports

Japan’s merchandise trade deficit for November was 1.35 trillion yen on a seasonally adjusted basis, compared with the 1.2 trillion yen median estimate in a Bloomberg News survey of economists. Imports climbed 21.1% from a year earlier while exports rose 18.4%, the finance ministry said.

“The trade data is having a big impact on the yen,” said Kathleen Brooks, European research director at Forex.Com in London. “The yen will have the biggest reaction” to a U.S. cut in stimulus because “if the Fed decides to taper, it leaves the BOJ on its own,” she said, referring to the Bank of Japan. That may weaken the yen toward 105 per dollar, Brooks said.

Bank of Japan officials see significant scope to increase government-bond purchases if needed to achieve their inflation target, according to people familiar with the discussions.

The pound rose for the first time in six days versus the dollar after U.K. unemployment fell to 7.4% in the three months through October, fueling speculation the Bank of England will need to raise interest rates sooner than it plans.

The Bank of England, led by Governor Mark Carney, has pledged to keep borrowing costs low until unemployment falls to 7%, subject to caveats on financial stability and the central bank’s inflation target of 2%.

Sterling added 1.1% to $1.6437.

www.bloomberg.com

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