Laura Matthews
NEW YORK (Reuters) – The dollar strengthened against other major currencies on Friday, hitting a up-to-date eight-week high against the yen after data showed a robust U.S. economy and the Federal Reserve’s patient approach to interest rate cuts contrasted with more dovish peers.
U.S. business activity hit a 26-month high in June as employment rebounded, while price pressures eased significantly, suggesting the recent slowdown in inflation is likely to continue.
The currency, which measures a currency against six others, rose 0.2% to 105.81 in afternoon trading in New York. It rose 0.41% overnight, erasing weekly declines following a second consecutive cut in interest rates by the Swiss National Bank and signals from the Bank of England of a cut in August.
Thierry Wizman, global currency and pricing strategist at Macquarie, in New York sees continued strength in the dollar as political uncertainty in Europe could ultimately undermine business and consumer confidence.
“Even if the euro or sterling were to rise, I cannot imagine that it would be a strong and lasting rise,” Wizman said. “I would be more willing to sell after this rally and then cover the lower price.”
For Matt Weller, head of market research at StoneX, Grand Rapids, Michigan, the Japanese yen will be crucial for FX traders next week.
The U.S. Treasury Department on Thursday added Japan to the list of countries it is monitoring for potential currency manipulator designation, a “diplomatic warning against additional intervention,” Weller said. The list includes China.
The yen came under pressure after last week’s decision by the Bank of Japan to hold off on scaling back its bond-buying stimulus until its July meeting. The dollar was last 0.4% stronger at 159.59 yen, after hitting a session high of 159.62.
The Bank of Japan, on orders from Japan’s Finance Ministry, spent about 9.8 trillion yen ($61.64 billion) to lift the currency from a 34-year low of 160.245 per dollar, which it hit on April 29.
Japan’s top foreign exchange diplomat, Masato Kanda, said on Friday that Tokyo was ready to take further “strong” action against “speculative, excessive volatility.”
Meanwhile, the dollar held at its highest level in almost five weeks against the pound sterling, which is unchanged at $1.2649, near its lowest level since mid-May. The BoE left interest rates unchanged this week, but some policymakers said the decision not to cut interest rates was “perfectly balanced.”
Friday’s data showed UK retail sales rose more than expected in May, largely due to milder weather.
A separate report showed British business growth slowed to its lowest level in seven months in June, driven by nerves ahead of the July 4 general election.
The euro was also unchanged at $1.0697, after a series of preliminary surveys for June showed that activity in the services sector in France fell this month, while activity in the overall German economy fell.
“Overall, the currency market appears to be hesitant to push for any major moves ahead of the French elections in late June/early July as this is still where most of the attention is focused, particularly on European currencies,” said Erik Nelson, macro strategy specialist at Wells Fargo in London.
