By Inyoung Hwang and Oliver Biggadike March 12 (Bloomberg) -- The dollar rose versus the yen after U.S. retail sales last month unexpectedly increased, fueling optimism the economic recovery is gaining traction and bolstering investors’ appetite for higher-yielding assets. The U.S. currency earlier slid to the lowest level against the euro in more than four weeks as Goldman Sachs Group Inc. recommended investors bet that the 16-nation currency will reverse some of its recent declines versus the greenback. The Canadian dollar headed toward parity with its U.S. counterpart. “Dollar strength is playing out more against the yen,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “There’s no doubt it was a good number and infinitely stronger than one would have expected given the blizzards.” The dollar gained 0.5 percent to 90.96 yen at 9:43 a.m. in New York. It dropped 0.5 percent to $1.3743 per euro, while the 16-nation currency climbed 1 percent to 125.01 yen. Sales at U.S. retailers rose for a second month to 0.3 percent as Americans braved snowstorms to get to the malls, after a revised 0.1 percent gain in January, a Commerce Department report showed. The median forecast of 77 economists surveyed by Bloomberg News was for a decline of 0.2 percent. ‘Still Life’ in Spending “There’s still life in the old dog yet as far as people spending,” said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut. “I wouldn’t be surprised if the dollar continued to accelerate against the yen. I predict it could close above 91 yen for the week.” Investors should buy the euro against the dollar, betting it may rise to $1.45, Goldman Sachs said. “We think euro-dollar has the potential to rally from here towards our three-month forecast,” Goldman Sachs analysts including Thomas Stolper in London wrote in an e-mailed report today. “We would go long with a stop on a one-day close below $1.35.” The Canadian dollar strengthened after a report showed the nation’s employers added 20,900 jobs in February, compared with economists’ median forecast of 15,500. The unemployment rate fell to 8.2 percent, from 8.3 percent. The currency touched C$1.0156, the strongest level since July 2008, the month that the two currencies last traded on a one-for-one basis. “We target parity on the back of this better-than-expected unemployment data,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. Yen Falls The yen fell against all 16 of its most-traded peers tracked by Bloomberg after Japanese Prime Minister Yukio Hatoyama said the government must take “firm measures” to keep the currency’s strength from hurting the economy. “At a time when Japan’s economy and industries aren’t necessarily strong, I don’t think this is being reflected by the strong yen,” Hatoyama said in parliament today. “We need to take firm measures against such yen strength.” Finance Minister Naoto Kan, also speaking in the Diet, said the government is ready to intervene in the foreign-exchange market if movements are abrupt. Japanese authorities haven’t stepped into the currency market since they sold 14.8 trillion yen ($163.4 billion) in the first quarter of 2004. The yen also fell on speculation the central bank will add money to the financial system next week to ease monetary policy and fight deflation. The Bank of Japan will hold a two-day policy meeting on March 16 and 17. The central bank’s easing options include expanding a 10 trillion-yen fund providing loans to banks, according to two central bank officials who spoke on condition of anonymity. ‘Scared the Market’ Japan is increasingly likely to intervene in foreign- exchange markets to stop the yen from rising, according to Morgan Stanley. “Talk of intervention scared the market and triggered a higher dollar yen,” said Meg Browne, vice president of foreign- exchange research at Brown Brothers Harriman & Co. in New York. The Swiss franc strengthened to below 1.46 per euro for the first time in more than a year, even after the central bank said yesterday it would act to stem “an excessive appreciation of the Swiss franc against the euro.” A report today from Reuters/University of Michigan may show the group’s preliminary consumer sentiment index for March rose to 74 from 73.6 last month, according to a Bl0oomberg survey. Rate-Boost Odds Traders increased bets the Federal Reserve will raise rates. Interest-rate futures on the CME Group Inc. exchange show a 49 percent chance U.S. policy makers will raise the benchmark target rate for overnight loans by at least a quarter-percentage point by September, compared with 43 percent odds a week ago. San Francisco Fed President Janet Yellen is President Barack Obama’s pick for vice chairman of the central bank, people with knowledge of the selection process said. Yellen said last month the U.S. economy still needs “extraordinarily low” rates. “Yellen is the Fed’s extended-period language personified,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “This adds weight to my view that we will see sustained pullback in the dollar in the second half of the year.” To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Oliver Biggadike in New York at obiggadike@bloomberg.net

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