US dollar climbs to highest since 2007 versus yen as data impress

The US dollar jumped to an almost eight-year high against the yen as economic reports suggested the US is getting back on track after a slow first quarter. -- PHOTO: AFP
The US dollar jumped to an almost eight-year high against the yen as economic reports suggested the US is getting back on track after a slow first quarter. -- PHOTO: AFP

NEW YORK (Bloomberg) - The US dollar jumped to an almost eight-year high against the yen as economic reports suggested the US is getting back on track after a slow first quarter.

The US currency strengthened versus all 16 of its major peers after orders for capital equipment rose for a second straight month and purchases of new homes exceeded forecasts. The euro dropped to its lowest in a month as Greek Finance Minister Yanis Varoufakis blamed creditors' insistence on additional austerity for an impasse on the release of financial aid.

"A lot of investors were expecting the US dollar to come back into vogue and I think we're seeing that now," Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce's CIBC World Markets unit, said by phone from Toronto. "Part and parcel to a US dollar recovery is incoming data, and we think that the incoming data needs to be strong to buttress those expectations that the Fed is going to hike this year."

The dollar climbed 1.2 per cent to 123.06 yen as of 2:46 p.m. in New York, the strongest level since July 2007. The US currency gained 1 per cent to US$1.0873 per euro, having reached US$1.0869 earlier in the day, its strongest since April 28.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, advanced 0.9 per cent to 1,191.67, touching its highest this month.

The Federal Reserve is weighing incoming data for signs the US economy is ready for higher borrowing costs, as policy makers consider when to raise rates for the first time since 2006.

Bookings for non-military capital goods excluding aircraft - a proxy for future corporate spending on new equipment - advanced 1 per cent in April after a revised 1.5 per cent gain in March that was larger than previously estimated, Commerce Department data showed Tuesday.

New home sales increased 6.8 per cent to a 517,000 annualized pace, beating the 508,000 median forecast of 70 analysts surveyed by Bloomberg before the release.

That boosted dollar buying after better-than-forecast reports on inflation and housing starts last week lifted Bloomberg's gauge of the dollar the most since 2011.

US central bankers are considering the risk of raising rates prematurely against having to play catch-up if they wait too long, Fed Vice Chairman Stanley Fischer said in a speech in Israel on Monday. He reiterated that the decision to increase borrowing costs would be "data determined", and a matter of "going from an ultra expansionary monetary policy to an extremely expansionary monetary policy."

Fed Chair Janet Yellen said on Friday it would be "appropriate" to raise rates this year if the economy improves.

"We've had a two-month correction to the downside to the dollar and I think that's ended," Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co., said during a radio interview with Bloomberg Surveillance. On dollar-yen, "we're approaching psychological, important levels that will convince more people that they can't fight this dollar uptrend."

The 125 yen per dollar level is key, he said.

The dollar has gained 8.9 per cent in the past six months against a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 3.7 per cent, while the euro fell 6.8 per cent.