Dollar edges higher against yen on strong U.S. indicators

EghtesadOnline: The dollar inched up against the yen on Wednesday after upbeat U.S. economic data reinforced expectations for economic growth under Donald Trump's Administration and more rate hikes by U.S. Federal Reserve next year.

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28 December 2016

The dollar rose 0.2 percent against the yen JPY= to 117.67, adding to its gains of nearly 0.5 percent on Tuesday in the wake of data showing U.S. consumer confidence hit a 15-year peak in December.

The dollar rose as high as 118.66 yen on Dec. 15, its highest since February, according to Reuters.

The Conference Board said its U.S. Consumer Confidence Index rose to 113.7, the highest since August 2001, as expectations for strength in job growth, business conditions and the stock market continued to build following Donald Trump's election to president.

U.S. house prices also continued their steady recovery in October, although a spike in borrowing costs could present a headwind to sustained home value gains, as rates rose after the election.

The upbeat data helped underscore expectations that the U.S. central bank would raise interest rates more frequently next year, a view that gained traction after the Fed on Dec. 14 projected three rate hikes next year compared with the two it predicted in September.

"The next data to watch is U.S. payrolls due on Jan. 6," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank in Tokyo. "Markets are prepared for data showing strong U.S. economy but not for the opposite."

Sera added that volatility could be high for the yen as Tokyo trading thins ahead of the Japanese New Year holiday, which lasts from Dec. 31 to Jan. 3.

The dollar index .DXY, which measures the greenback against a basket of six major peers, last stood at 102.97, down 0.1 percent and below its 14-year peak of 103.650 touched on Dec. 20.

The greenback was supported as U.S. Treasury yields rose on Tuesday to one-week highs in response to the strong domestic data.

The dollar index has risen 5.3 percent since the U.S. election, propelled by expectations that Trump would drive deregulation and fiscal stimulus.

"Markets (will now) wait and see how the Trump administration will deliver its fiscal expansion, monetary easing and protectionist policy," said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.

"Deregulation to compensate for smaller fiscal stimulus would not be favoured by the general public, but it will be later in the year should disappointment creep in," he added.

The euro EUR= was last up 0.1 percent against the greenback at $1.0470. The common currency marked a 14-year low of $1.0352 on Dec. 20, and concerns about Italian banks and upcoming elections in France and Germany look set to keep investors on edge into the start of 2017.

The Italian government is likely to pump around 6.5 billion euros ($6.8 billion) to rescue the country's third biggest lender Monte dei Paschi.

The troubled Italian bank requested government support last week after it failed to raise 5 billion euros from private investors.

The Australian and New Zealand dollars were near multi-month lows on expectations of more tightening by the Fed following the strong U.S. economic data.

The Australian dollar AUD=D4 edged up 0.2 percent to $0.7201, just above a seven-month trough of $0.7160 touched last week.

The New Zealand kiwi NZD=D4 inched up 0.3 percent to $0.6912, having plumbed $0.6863 on Dec. 23, its lowest since June.