Crude Oil, US home sales, central bank messages boost dollar
San Francisco (Jan 23) The dollar firmed on Friday, boosted by increased expectations of monetary easing by central banks in Europe and Japan, and by strong U.S. housing data.
The dollar touched a two-week high against the yen, which has risen nearly 3 percent versus the greenback this year as the sell-off in oil and global equity markets has pushed traders to seek out the safe-haven currency.
The dollar rose 0.81 percent to 118.72 yen.
The euro briefly fell below $1.08 to the dollar for the second time in as many days, nearing a two-week low. The euro zone common currency was last down 0.45 percent to $1.08.
Investors "are still very much watching three or four different things from other markets, not least China and U.S. equities," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York. "But the biggest mover and most influential by far, in the last 24 hours at least, has been the recovery in crude oil."
Crude prices rose more than 6 percent on Friday as cold weather boosted demand for heating oil across the United States and Europe. Crude futures were poised for their first weekly gain this year.
Generally, the dollar's strength has contributed to weakness in oil. However, crude's rebound now suggests improved overall global sentiment, and that is driving money away from the euro and yen via so-called carry trades.
When sentiment is strong, investors borrow in the yen and euro to put money into higher-yielding currencies; the United States has higher interest rates than Japan and the countries of major European markets.
Currencies tied to oil production, such as the Canadian dollar, were stronger. The loonie rose 0.87 percent, and was headed for its second straight day of big gains against the greenback.
The U.S. dollar got a bounce mid-morning from data showing U.S. existing home sales jumped a record 14.7 percent in December. Sales rose 6.5 percent for the whole of 2015, making it the strongest year since 2006.
After European Central Bank chief Mario Draghi said the bank would need to review policy in March, which was read in the market as a promise of more easing, sources familiar with the Bank of Japan's thinking said the market turmoil could lead it to consider more asset purchases.
Bank of Japan Governor Haruhiko Kuroda said Friday at the World Economic Forum in Davos there is further room for the BoJ to expand its quantitative easing program if inflation continues to be hit by the oil price slump and slowing economic growth.