By Kevin Buckland
TOKYO (Reuters) – The dollar held near a two-week high against the yen after posting its biggest one-day gain against major currencies in four weeks, as solid U.S. economic data all but erased recession fears.
The dollar was particularly forceful against the Japanese currency thanks to a rise in Treasury yields as investors shed money on bets that the Federal Reserve will be forced to ease monetary policy aggressively next month.
Risk-sensitive currencies such as sterling strengthened as an improving economic outlook spurred gains in stock markets.
The index, which measures the greenback’s value against six major currencies including the yen, sterling and euro, was unchanged at 103.20 after rising 0.41% overnight, its biggest gain since July 18.
The dollar weakened slightly to 149.11 yen but remained close to Thursday’s high of 149.40 yen, a level last seen on Aug. 2.
The Commerce Department said retail sales rose 1.0% last month, beating forecasts for a 0.3% escalate. Separate data showed 227,000 Americans filed for unemployment benefits last week, fewer than the 235,000 expected.
Traders are confident the Fed will cut interest rates on Sept. 18, but have debated the size of the cut. The odds of a super-sized 50-basis-point cut now stand at 25%, up from 36% a day earlier, according to CME Group’s (NASDAQ:) FedWatch tool.
Surprisingly frail monthly payroll data earlier this month raised the probability of a larger cut to 71%.
“Economic growth is improving and consensus is once again supporting the ‘soft landing’ thesis,” said Chris Weston, head of research at Pepperstone, pointing to 150 yen per dollar as the next level to watch for the currency pair.
“While there are always risks that could have an impact, there is little in the data flow right now that could really dampen sentiment in the near future.”
Sterling rose slightly to $1.2859, building on an overnight gain of 0.21%. The British currency received an additional boost from solid GDP data on Thursday.
The euro remained at $1.0973, after falling 0.36% in the previous session.
The risk-sensitive Australian dollar held steady at $0.66105, having gained 0.2% the previous day after data showed a much stronger-than-expected escalate in jobs.
