Dollar climbs to highest since 2007 versus yen as data impress

[NEW YORK] The dollar jumped to an almost eight-year high against the yen as economic reports suggested the US is getting back on track after a slow first quarter.

The US currency strengthened versus all 16 of its major peers after orders for capital equipment rose for a second straight month and purchases of new homes exceeded forecasts. The euro dropped to its lowest in a month as Greek Finance Minister Yanis Varoufakis blamed creditors' insistence on additional austerity for an impasse on the release of financial aid.

"We've had a two-month correction to the downside to the dollar and I think that's ended," Marc Chandler, global head of currency strategy at Brown Brothers Harriman & Co, said during a radio interview with Bloomberg Surveillance. On dollar-yen, "we're approaching psychological, important levels that will convince more people that they can't fight this dollar uptrend."

The 125 yen per dollar level is key, he said.

The dollar climbed 1.2 per cent to 123.03 yen as of 11:27 am in New York, the strongest level since July 2007. The US currency gained 0.8 per cent to US$1.0890 per euro, having reached US$1.0873 earlier in the day, its strongest since April 28.

The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its major peers, advanced 0.8 per cent to 1,190.67, touching its highest this month.

Markets in Hong Kong, the UK and US reopened after being closed for holidays on Monday.

The Federal Reserve is weighing incoming data for signs the US economy is ready for higher borrowing costs, as policy makers consider when to raise rates for the first time since 2006.

Bookings for non-military capital goods excluding aircraft - a proxy for future corporate spending on new equipment - advanced 1 per cent in April after a revised 1.5 per cent gain in March that was larger than previously estimated, Commerce Department data showed Tuesday.

New home sales increased 6.8 per cent to a 517,000 annualized pace, beating the 508,000 median forecast of 70 analysts surveyed by Bloomberg before the release.

That boosted dollar buying after better-than-forecast reports on inflation and housing starts last week lifted Bloomberg's gauge of the dollar the most since 2011.

"It feels like the rally is back on, the durable goods adds to the improving data backdrop for the dollar," said Vassili Serebriakov, a New York-based foreign-exchange strategist at BNP Paribas SA. "Dollar-yen is moving higher so quickly because positioning was very light."

US central bankers are considering the risk of raising rates prematurely against having to play catch-up if they wait too long, Fed Vice Chairman Stanley Fischer said in a speech in Israel on Monday. He reiterated that the decision to increase borrowing costs would be "data determined," and a matter of "going from an ultra expansionary monetary policy to an extremely expansionary monetary policy." Fed Chair Janet Yellen said on Friday it would be "appropriate" to raise rates this year if the economy improves.

"The dominant thing is the dollar story," said Esther Reichelt, a currency strategist at Commerzbank AG in Frankfurt. Fed policy makers "know that low rates are not without risk." The dollar has gained 8.8 per cent in the past six months against a basket of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen rose 3.5 per cent, while the euro fell 6.7 per cent.

Greece is due to repay about 300 million euros to the International Monetary Fund on June 5. Liquidity has evaporated amid a failure to reach an agreement with lenders, pushing the economy back into recession.

Price swings in the euro are becoming more pronounced amid the standoff, with implied one-month volatility against the dollar climbing as high as 13.97 per cent Tuesday, the highest since Jan 16. The measure was at 10.5 per cent as recently as May 14, data compiled by Bloomberg show.

BLOOMBERG