Dollar Climbs Toward 5-Year High Against Yen

New York (Jan 8)  The dollar strengthened for a second day against the euro and the yen before the Federal Reserve releases minutes of its December meeting as investors debate how quickly policy makers will reduce stimulus.

The U.S. currency climbed toward a five-year high versus the yen after San Francisco Fed President John Williams said officials may this year end their bond-purchase program this year. The Canadian dollar dropped to the lowest level in more than three years against its U.S. counterpart. Norway’s krone fell after an index of manufacturing fell. A gauge of foreign-exchange volatility climbed from a six-week low.

“The Fed is going to continue to push the message of moderate tapering but I think they will provide a very bullish outlook for the economy,” said Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley in London.  “We’re looking for the dollar to continue to gain broad-based support” versus the Group-of-10 currencies, he said.

The dollar gained 0.2 percent to $1.3587 per euro at 7:17 a.m. New York time after appreciating to $1.3572 on Jan. 6, the strongest since Dec. 5. The U.S. currency rose 0.2 percent to 104.82 yen after climbing to 105.44 on Jan. 2, the highest since October 2008. The yen was little changed at 142.41 per euro.

The Fed will reduce bond purchases to $75 billion a month from $85 billion starting in January, officials said after their Dec. 17-18 meeting. They will trim buying in $10 billion increments over the next seven meetings before ending them in December, according to the median forecast in a Bloomberg News survey on Dec. 19.

‘First Step’

“Assuming the economic recovery plays out as we expect, we will likely continue to reduce the pace of those purchases, and eventually eliminate them, over this year,” Williams said in the text of a speech delivered in Phoenix. “This will be an important first step towards eventually bringing monetary policy back to a more normal setting.”

The dollar gained 2 percent in the past three months, according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The euro rose 2.1 percent, while the yen slumped 6.6 percent.

“We’re on the path to a stronger dollar,” said Ray Attrill, global co-head of currency strategy at National Australia Bank Ltd. in Sydney. “The data drives the Fed and at the moment there’s nothing to seriously upset expectations that the economy will be in an OK enough state for them to proceed” with reducing stimulus, he said.

Dollar Index

The Bloomberg Dollar Spot Index, which tracks the currency against 10 of its major counterparts, rose 0.2 percent today to 1,027.83 after gaining 0.3 percent yesterday.

U.S. companies added 200,000 workers last month, compared with 215,000 in November, according to a Bloomberg survey of economists before the ADP Research Institute releases the data today. The Labor Department will publish its monthly payrolls reports on Jan. 10.

JPMorgan Chase & Co.’s volatility index for the currencies of the Group of Seven nations climbed six basis points, or 0.06 percentage point, to 8.1 percentage points after dropping to 7.95 percentage points yesterday, the lowest since Nov. 21.