April 24 (Bloomberg) -- The dollar advanced for the first time in three weeks against the yen on evidence of a global economic recovery including a surge in the U.S. housing market before next week’s Federal Reserve policy meeting.
The euro touched its weakest level in almost a year against the dollar before Greece asked the European Union and the International Monetary Fund yesterday to activate a bailout of as much as 45 billion euros ($60 billion). The yen fell against all of its major counterparts this week as central banks signaled they will begin increasing borrowing costs to contain inflation, encouraging demand for higher-yielding assets.
“There’s lots of good data in the U.S. and globally, and that’s keeping the yen on the back foot,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “The aid package for Greece is a temporary stop-gap. The combination of strong U.S. numbers, a more upbeat Fed and sovereign concerns in Europe means it’s just a matter of weeks before the euro breaks $1.30.”
The dollar increased 2 percent to 93.97 yen, from 92.17 on April 16. The euro declined 0.9 percent to $1.3384, from $1.3503 last week. It touched $1.3202 yesterday, the lowest level since April 30, 2009. The euro appreciated 1 percent to 125.73 yen, from 124.44 yen.
New Zealand’s dollar gained 3.2 percent to 67.40 yen and Mexico’s peso increased 2.8 percent to 7.72 yen this week on speculation investors will increase carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions.
Yuan Forwards
Yuan forwards touched a three-month high on April 22, before yesterday’s meeting of Group of 20 finance chiefs in Washington. The officials called in a statement for “credible” plans to withdraw economic stimulus as the recovery gains momentum and Greece’s fiscal turmoil highlights the risks posed by mounting government debt.
Treasury Secretary Timothy F. Geithner earlier this month called the talks an “avenue for advancing U.S. interests” on the Chinese currency.
Twelve-month non-deliverable yuan forwards ended the week at 6.6115 per dollar, compared with 6.6185 on April 16. The contracts reached 6.5930 on April 22, reflecting bets that the currency will strengthen about 3 percent.
The dollar rose to the strongest level in two weeks versus the yen yesterday as government reports showed U.S. new-home sales rose in March by the most in almost five decades and orders for durable goods surged.
U.S. Housing Market
New-home sales rose 27 percent in March, the most since April 1963, and orders for U.S. durable goods excluding transportation items gained 2.8 percent, the Commerce Department reported. The median forecast of 75 economists in a Bloomberg News survey was for a 0.7 percent advance in bookings for goods meant to last at least three years.
The housing number was “incredible,” and the durable- goods report was “strong,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “These reports will send the FOMC back to the drawing board to fine-tune the interest rate trajectory.”
The dollar decreased 0.2 percent against the yen on March 16, when the Fed retained its pledge to keep the target lending rate at virtually zero for an “extended period.”
All of the 98 economists in a Bloomberg News survey predict the Federal Open Market Committee will hold its fed funds target at a range of zero to 0.25 percent on April 28.
Euro Versus Krone
The euro fell for a fourth week against the Norwegian krone, dropping 1 percent to 7.8833, as Greece called for financial assistance in an unprecedented test of the 16-nation currency’s stability and European political cohesion.
“The fragmented nature of the European bond market will call into question the euro’s credibility as a reserve currency,” said Adam Cole, head of global currency strategy at Royal Bank of Canada in London.
Canada’s currency touched its strongest level versus the greenback in almost two years this week after the Bank of Canada signaled it may be the first Group of Seven nation to increase borrowing costs as economic growth accelerates and stokes inflation.
The central bank dropped a phrase regarding its “conditional commitment” to keeping the record low 0.25 percent target lending rate unchanged until July unless the inflation outlook shifted.
The Canadian dollar gained 1.4 percent to 99.91 Canadian cents per U.S. dollar, from C$1.0128 last week. The currency reached parity with the greenback on April 6 for the first time since July 2008.
India’s rupee climbed 1.7 percent to 2.12 yen after the central bank raised interest rates for the second time in a month and ordered lenders to set aside more cash as reserves in an attempt to slow the highest inflation rate among the G-20.
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