The dollar rose to 3 1/2-month highs against the yen and the euro amid speculation US economic growth will rebound in coming months as Japanese and European economies weaken.
"In the US, the economy's not looking as bad as people thought," said Alex Ignarra, a trader at Fortis USA Financial Markets. "You've got to continue buying dollars."
The US currency climbed as far as Japanese yen 124.46, its highest level since Aug. 2, and then traded at Japanese yen 124.30, up from Japanese yen 123.91 on Friday. It strengthened to US$0.8737 per euro, the strongest level since July 31, from US$0.8779 yesterday, before trading at US$0.8781.
PHOTO: REUTERS
Signs the US economy is recovering, such as a fourth straight drop in weekly jobless claims, helped the dollar rise 1.1 percent against the yen and 0.7 percent against the euro this week. Increases in leading economic indicators and consumer confidence gauges, along with gains in US stocks [on Friday], also stoked demand for dollars, traders said.
"People are getting a little more optimistic on our stocks," said Bill Bertha, a foreign-exchange manager at Mellon Financial Corp in Pittsburgh. The NASDAQ Composite Index rose 1.5 percent, the Dow Jones Industrial Average 1.3 percent and the Standard & Poor's 500 Index 1.2 percent.
In Europe, a German slump seems likely to drag the region's economic growth rate to a nine-year low next year, the European Commission said. Japan, meanwhile, is considering buying more foreign bonds in hopes of weakening the yen and spurring exports.
The euro failed to hold onto gains today after Germany, the euro region's largest economy, said its inflation rate fell more than forecast in the latest month. That might give the European Central Bank more room to lower interest rates.
Recent proof of the region's slowdown, however, overshadowed that prospect, traders said. The German government yesterday reported that the nation's economy shrank 0.1 percent during the third quarter after growth stalled in the second.
"I still don't see any real reasons to buy euros," said Ignarra at Fortis. "I'm looking to sell on any rallies." The currency may drop as far as US$0.85 before January, he said.
The yen fell for a second day after Bank of Japan board member Shin Nakahara said yesterday the government is considering increasing long-term government bond purchases.
Such purchases might help revive Japan's economy, which faces its biggest contraction in more than two decades during the fiscal year that ends March 31, based on a government forecast.
The central bank would have to swap yen for other currencies to make the purchases, a move that would weaken the yen. The Bank of Japan sold Japanese yen 3.2 trillion (US$26.5 billion) in the last three weeks of September to help boost exporters' earnings. Speculation that the Bank of Japan "will buy foreign bonds is bad for the yen," said Hyung Kyoo Park, manager of the Treasury Department at Bank One NA in Seoul. The yen may weaken 2.2 percent to Japanese yen 127 in the next three months, he said.
The dollar was little changed against the British pound, at US$1.4102 per pound compared with US$1.4108 yesterday.
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