The Dollar Index reached an almost three-year high before U.S. data forecast to show unemployment claims drop down and home sales bolster, adding to the case for the Federal Reserve to reduce monetary stimulus.
The greenback strengthened versus most major counterparts and Treasury yields boost to the highest in two months after Fed Chairman Ben S. Bernanke said yesterday the central bank may taper monthly bond purchases if it’s confident of sustained gains in the economy. Australia’s dollar skid to an 11-month low as a private report showed China’s manufacturing is contracting for the first time in seven months. The yen moved higher on speculation its two-day slide was excessive.
“Expectations of a reduction in quantitative easing have spurred dollar buying,” said Masato Yanagiya, the New York-based head of foreign-exchange and money trading at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “U.S. jobs data will draw even more attention.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback versus currencies of six U.S. trading partners, slightly move at 84.29 at 1:03 p.m. in Tokyo. It touched 84.498, the most since July 2010, as 10-year Treasury yields surged to as high as 2.07 percent, a level unseen since March 14. The dollar inched up 0.1 percent to $1.2848 per euro.
Japan’s currency bolstered 0.3 percent to 102.87 yen per dollar and jumped 0.4 percent to 132.16 yen per euro.
The yen’s 14-day relative strength index against the greenback was 34, after yesterday reaching 30, which signifies an asset’s price has fallen too fast and may be poised to reverse course. The Japanese currency’s RSI versus the euro was 39.
Fed Policy
U.S. government data due today may show the world’s biggest economy is picking up. The number of applications for jobless insurance payments probably fell to 345,000 in the week ended May 18 from 360,000 the prior week.
Sales of newly built houses increased to a 425,000 annualized rate in April, a three-month high, from 417,000 a separate poll of economists shows.
“We’re trying to make an assessment of whether or not we have seen real and sustainable progress in the labor market outlook,” Bernanke said in testimony to Congress. “If we see continued improvement and we have confidence that that is going to be sustained, then we could in -- in the next few meetings -- we could take a step down in our pace of purchases.”
The Aussie gave up 0.7 percent to 96.28 U.S. cents. It earlier reached 96.26, the worst since June 1.
Chinese Production
The preliminary reading of a Purchasing Managers’ Index for China’s manufacturing declined to 49.6 in May from 50.4 the previous month, HSBC Holdings Plc and Markit Economics said today. The level of 50 is a dividing line between expansion and contraction.
“The China PMI is another weight that’s adding to the momentum pushing Aussie down,” said Kara Ordway, a currency strategist at City Index Group Ltd. in Sydney.
Separate reports from Markit Economics will probably show today that contraction in the German and French manufacturing industries is continuing. The purchasing managers’ index for Germany (PMITMGE) is estimated at 48.5 from 48.1 in April and that for France (PMITMFR) at 44.7 versus 44.4, according to economist projections.
The European Central Bank cut the benchmark rate by a quarter percentage point to a record 0.5 percent this month. It’ll next meet on June 6.
“The PMI numbers in France and Germany today are expected to improve a little, but if they don’t, then that could be a situation in which the ECB looks to cut rates at the next meeting,” said Chris Weston, the chief market strategist at IG Markets in Melbourne. “This is the last round of data before we get the June meeting, so this is an important week for the euro.”
