The dollar rose to the strongest in almost seven years against the yen as the Federal Reserve moves toward interest-rate increases while the Bank of Japan adds to monetary stimulus.
The U.S. currency (NYBOT:DXZ14) appreciated versus most of its 16 major counterparts before a report this week forecast to show employers added workers in the world’s largest economy. The euro fell to a two-year low against the greenback before the European Central Bank meets this week. Australia’s dollar (CME:A6Z14) had its biggest decline in more than two weeks as building approvals fell the most since July 2012 and Chinese manufacturing slowed.
“We’ve had a very surprising move in dollar-yen,” said Steven Saywell, the London-based global head of foreign-exchange strategy at BNP Paribas SA. “There’s plenty of potential for dollar longs to increase between now and the end of the year and it’s probably the turn of the U.S. to lead that move.” Long positions are bets a currency will strengthen.
The dollar rose 1.4% to 113.85 yen at 10:01 a.m. New York time and reached 113.96 yen, the highest since December 2007. The U.S. currency gained 0.3% to $1.2487 per euro after appreciating to $1.2440, the strongest level since August 2012. The yen (CME:J6Z14) slipped 1.1% to 142.18 per euro. Japan’s financial markets were shut for a holiday.
A JPMorgan Chase & Co. gauge of global currency volatility climbed to 8.20%, its highest level since Oct. 16.
The Australian dollar slipped versus most of its 31 major peers after a government report showed the nation’s building approvals plummeted 11% in September from August, the steepest drop in more than two years.
A measure of China’s services industry fell to a nine-month low in October, joining manufacturing in signaling a broadening economic slowdown in the nation, Australia’s largest trading partner.
Traders are pricing in little prospect of an increase in the cash rate in 2015 and no chance Reserve Bank of Australia Governor Glenn Stevens and his board will move the benchmark interest rate tomorrow from 2.5%.
The Aussie fell 0.9% to 87.16 U.S. cents after declining 0.4% on Oct. 31.
Sweden’s krona (CME:SKZ14) touched a four-year low versus the dollar as a report showed manufacturing slowed more last month than economists predicted. The krona slipped as much as 0.5% to 7.4318 against the dollar, the weakest since August 2010, before erasing losses to gain 0.1%.
Japan’s currency fell against all of its 31 major peers after the central bank said on Oct. 31 it plans to expand the monetary base by 80 trillion yen ($703 billion) a year, up from a previous 60 trillion yen to 70 trillion yen.
The same day, Japanese officials also unveiled reforms to the Government Pension Investment Fund that increased allocations to stocks and overseas assets by more than expected. Japan’s public retirement-savings manager will put half its holdings in local and foreign stocks and reduce domestic bonds to 35% of assets from 60%.
The Fed meanwhile finished a program of bond buying on schedule last month, taking the U.S. closer to its first interest-rate increase in eight years. The central bank highlighted “solid” job gains and a falling unemployment rate in its statement on Oct. 29, while pledging to maintain borrowing costs at a record low for a “considerable time.”
“The BOJ’s timing was exquisite, coming right when Fed QE was knocked on the head,” said Ray Attrill, the Sydney-based global co-head of currency strategy at National Australia Bank Ltd., which is reviewing its yen forecasts after the decision. “It’s not just the BOJ: Those changes at GPIF imply a much bigger shift in benchmark allocations in favor of foreign assets. That’s the additional game-changer here.”
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, rose 0.5% to 1,085.51, set for the highest close since April 2009. It advanced 0.9% in October, its fourth consecutive monthly gain, the longest stretch since the period through March 2013.
“All arguments are in favor of the dollar,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. “It’s very clear that the Fed is the central bank that is relatively hawkish. We are seeing underlying dollar strength, and it’s justified.”
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