22/12/2013 10:24 AST
The dollar reached a five-year high against the yen on optimism US economic growth will outperform Japan’s next year.
The yen declined for an eighth week against the greenback after the Bank of Japan retained its plan to add 60tn yen ($574bn) to 70tn yen a year to the monetary base. The Bloomberg Dollar Spot Index fell from a three-month high reached after the Federal Reserve said this week it would cut monthly bond purchases by $10bn as economic growth improves. Turkey’s lira weakened to a record as the government purged police leadership to fight against a corruption probe.
“Dollar will perform relatively well in 2014,” Charles St-Arnaud, Canadian economist and foreign-exchange strategist at Nomura Securities International in New York, said in a phone interview. “You should start to see better growth numbers.”
The dollar lost 0.1% to 104.10 yen at 5 pm New York time after appreciating to 104.64, the strongest level since October 2008. The US currency dropped 0.1% to $1.3673 per euro after appreciating to $1.3625, the most since December 6. The yen climbed 0.1% to 142.32 per euro.
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, slipped 0.2% to 1,021.34 after reaching 1,025.68, the highest level since September 13.
Brazil’s real fell for a third day after the central bank said it’ll cut back on intervention to support the currency. Brazil will auction $200mn of foreign-exchange swaps on trading days from January through at least the end of June, down from offerings of $500mn four days a week this year.
The real depreciated 1.3% to 2.3874 per US dollar, the worst performance among 24 developing-nation counterparts tracked by Bloomberg.
Most Asian currencies weakened on speculation inflows will slow as the Fed begins curbing stimulus that has fuelled demand for emerging-market assets.
Malaysia’s ringgit dropped 0.5% to 3.2880 per dollar, the Thai baht fell 0.4% to 32.61 per dollar, while Indonesia’s rupiah was little changed after dropping to a five-year low of 12,255.
The euro gained against the greenback even after Standard & Poor’s cut the European Union’s long-term rating to AA+ with a stable outlook. The region’s financial profile has deteriorated and “cohesion” among the member states has lessened, the rating company said.
“It seems to have been a short-term negative for the euro,” said Callum Henderson, global head of currency research at Standard Chartered Plc in Singapore. “That said, the times when ratings downgrades had a lasting impact on foreign-exchange rates seem to be a thing of the past.”
European Central Bank President Mario Draghi said December 16 that there are risks from long periods of low inflation and policy makers have tools to address this, including “several other instruments on the liquidity front.”
“Euro-dollar will gradually grind lower” to less than $1.30 in a year, said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd in London. “Next year, the risk is that the ECB may move to boost liquidity” while the Fed keeps reducing stimulus, he said.
The yen has dropped 0.9% since December 13, extending its decline during its eight-week losing streak to 6.7%. The US economy will expand 2.6% in 2014, while Japan’s gross domestic product will grow 1.6%, according to Bloomberg News surveys of economists. BoJ policy makers said after their two-day meeting they will maintain stimulus until annual inflation is stable at 2%. The BoJ will examine the risks and make policy adjustments as needed, according to a statement. Most economists surveyed by Bloomberg anticipate the central bank will boost stimulus after the national sales tax is raised in April.
Bloomberg
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