The dollar rallied against the euro and yen as economic reports suggested the US economy is getting closer to a rebound.
A University of Michigan index showed consumer confidence rose this month, while personal spending dropped less than forecast. Manufacturing in the Philadelphia area in December was stronger than projected, according to statistics yesterday.
"The foundation is in place for a quick recovery and strong growth next year" in the US, said Lara Rhame, a currency economist at Brown Brothers Harriman & Co. Investors exiting Japan, in its third recession in a decade, have been funneling more of that cash to the US instead of Europe in recent days, Rhame said.
The US currency rose 1.4 percent to US$0.8873 per euro from US$0.9001 yesterday, reaching a two-week high. It gained to US$1.4386 per British pound from US$1.4486, and to SF1.6545 from SF1.6313. The dollar strengthened to a three-year high against the yen of ?129.68 from ?128.66 yesterday, before retreating to ?129.45. On the week, the dollar climbed 2 percent against the euro and 1.7 percent against the yen. Traders pushed the dollar to its highest levels of the day after the University of Michigan report showed consumer optimism reached a four-month high this month.
"The dollar is seen as a pretty safe place to hold" investments in the final days of the year, said Andrew Delano, a currency analyst at IDEAglobal.com.
Japan's currency dropped to its weakest since Oct. 7, 1998, and fell a seventh straight day, the longest tumble in four years.
The yen sank after a Japanese Finance Ministry official said the currency was "too strong," suggesting the government will let it fall further to help boost the economy.
Zembei Mizoguchi, director-general of the ministry's international bureau, said the decline was justified given the weak state of the economy. Finance Minister Masajuro Shiokawa said the yen's drop was "not unnatural."
"The authorities are now actively encouraging a weaker yen on a day-by-day basis," said Andrew Snowball, who helps oversee about US$5 billion at Julius Baer Investments Ltd. in London. "The way policy is going, the yen will continue to fall."
"We're really just in a transition to a new trading range" of ?125 to ?130 per dollar, with the possibility of reaching ?135, said Marc Chandler, chief currency strategist at HSBC Bank USA.
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