US dollar gains against yen in thin trading after US data

[NEW YORK] The US dollar rose against the yen on Tuesday on stronger-than-expected US economic data and expectations for a hawkish Federal Reserve, but remained below a recent 10-month high in thin holiday trading.

The data helped underscore expectations that the Fed would raise interest rates at a faster pace next year, a view that gained traction after the Fed on Dec 14 projected three rate hikes next year, up from the two foreseen in September.

Trading was thin as markets in Britain, Australia, New Zealand, Canada and Hong Kong were closed for holidays.

"The prospect of Fed tightening next year is keeping bonds under pressure, (Treasury) yields up and the dollar bid, and obviously the Case-Shiller data is helping that," said Kathy Lien, managing director at BK Asset Management in New York.

The S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas rose 0.6 per cent in October from the previous month, outpacing expectations of economists polled by Reuters for a 0.5 per cent increase.

The US dollar extended gains to a session high against the yen of 117.61 yen, putting it up nearly 0.5 per cent against the Japanese currency on the day, in the wake of data showing US consumer confidence hit its highest level in more than 15 years in December.

The US dollar remained below a 10-month high against the yen, of 118.66 yen, touched Dec 15, and a 14-year high against a basket of major currencies touched Dec 20. The US dollar index, which measures the greenback against a basket of six major rivals, was last flat at 103.020, below the 14-year peak of 103.650.

Analysts said the US dollar's uptrend looked intact, even as 120 yen and parity with the euro remained elusive.

"The dollar has been and is likely to continue to be supported by expectations that a new administration in Washington is going to be inflationary, and thus force the Fed to raise US borrowing costs at a faster pace in 2017," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said in a research note.

The US dollar index was last on track to gain about 4.5 per cent for 2016 to mark its fourth straight yearly increase. All the gains have come since the Nov 8 US election on expectations that US President-elect Donald Trump's economic plans and the faster pace of Fed rate hikes would boost the US dollar.

The euro was last roughly flat against the greenback at US$1.0457.

REUTERS