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Dollar Advances Before Jobs Data, Bernanke Testimony; Yen Slides - (Bloomberg)

Posted by Chris Advincula on Jul 18, 2013 6:49:00 AM

By Lucy Meakin and Mariko Ishikawa - Jul 18, 2013

The dollar strengthened before data that economists say will signal improvement in the U.S. job market, boosting the case for Federal Reserve Chairman Ben S. Bernanke to reduce his currency-debasing stimulus program.

The yen fell for a second day against most of its 16 major peers on bets Group-of-20 finance ministers and central bankers meeting this week will endorse the Bank of Japan’s monetary easing that aims to stoke inflation to 2 percent. The euro touched a seven-week high versus the yen as Greece cleared the way for the next tranche of international aid. Bernanke speaks to Congress today after telling lawmakers yesterday he would take a wait-and-see stance on slowing stimulus.

“The dollar is generally very well bid this morning,” Adam Cole, head of G-10 currency strategy at Royal Bank of Canada, said by phone from London. “The market expectation that the tapering announcement will come in September still looks sensible and nothing Bernanke said yesterday changed that. What we’re now doing, instead of watching the central bank comments, is watching the data.”

The dollar advanced 0.6 percent to 100.21 yen at 10:10 a.m. London time after rising 0.5 percent yesterday. It appreciated 0.1 percent to $1.3116 per euro. The 17-nation currency gained 0.5 percent to 131.40 yen after touching 131.47, the strongest since May 31.

Bernanke, who’s due to testify to the Senate Banking Committee from 10:30 a.m. in Washington, yesterday said the Federal Open Market Committee wants to assure that the U.S. economy and labor markets have sufficient momentum before reducing asset purchases.

QE Pace

If the economy improved faster than expected, and inflation rose back “decisively” toward the central bank’s 2 percent target, “the pace of asset purchases could be reduced somewhat more quickly,” Bernanke said yesterday. The Fed would also be prepared to increase the pace of its bond purchases -- currently at $85 billion a month -- “for a time, to promote a return to maximum employment in a context of price stability.”

“We maintain our view that the U.S. economy will gradually improve in the second half of this year,” said Yujiro Goto, a foreign-exchange strategist in New York at Nomura Holdings Inc. “There’s no need to change our view on a mild strength in the dollar.”

The dollar rose against all but one of its major counterparts before Labor Department data that economists said will show first-time claims for jobless benefits decreased by 15,000 to 345,000 in the week ended July 13.

Analysts in a separate Bloomberg survey estimate the number of jobless-benefit claimants fell by 18,000 to 2.96 million in the week ended July 6.

Yen Weakens

The Bloomberg Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.2 percent, matching yesterday’s advance.

The yen weakened for the fourth time in five days against the greenback after Russian Deputy Finance Minister Sergei Storchak said the G-20 probably won’t call for a tapering of stimulus in nations including Japan.

“I don’t yet see a pressing need to demand anything from countries that are conducting quantitative easing,” Storchak said in Moscow on July 16 before G-20 policy makers meet in the Russian capital this week. “Europe, the U.S., and Japan aren’t ready in the current environment to turn away from easy-money policies.”

BOJ Purchases

The BOJ doubled monthly bond purchases to more than 7 trillion yen in April after Prime Minister Shinzo Abe urged the central bank to take steps to overcome deflation. Polls have shown Abe’s Liberal Democratic Party and coalition partners are likely to win a majority in the upper house election this weekend, ending a split parliament.

Japan’s currency lost 22 percent in the past year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, as Abe and BOJ Governor Haruhiko Kuroda pursued a policy of monetary accommodation to boost the Japanese economy. The euro strengthened 9 percent and the dollar gained 1.3 percent.

“We see the yen weakening further,” said Kengo Suzuki, the chief currency strategist at Mizuho Securities Co. in Tokyo, a unit of Japan’s third-biggest bank by market value. “Markets will expect additional easing once they are convinced that the BOJ will undershoot its price target, so Japan’s monetary policy is tilted toward further accommodation.”

Greek lawmakers passed a bill that puts thousands of state workers on notice for possible dismissal, a victory for Prime Minister Antonis Samaras that clears the way for the country’s next bailout installment. The vote came hours before German Finance Minister Wolfgang Schaeuble arrives in Athens for a one-day visit.

“Greece’s passage of the austerity bill may halt a decline in the euro in the near term,” said Mizuho’s Suzuki. 

 

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