BLBG: Dollar Gains Against Yen on Speculation Fed Will Move Sooner
The dollar strengthened against the yen for a fourth day on speculation the Federal Reserve will increase interest rates sooner than expected.
The pound fell against all of its major counterparts after the U.K.’s economy unexpectedly contracted in the third quarter, giving the Bank of England more reason to expand emergency measures to spur growth. The dollar gained against most major currencies after Philadelphia Fed President Charles Plosser yesterday told Bloomberg Radio his “instinct is the time for raising rates will be before many of my colleagues” think it is.
“The market is anticipating a more hawkish posture out of the Fed and that in turn is turning into better yields, and the most direct way that’s reflected in the currency market is dollar-yen,” said Boris Schlossberg, director of currency research at online currency trader GFT Forex in New York.
The dollar rallied 1.6 percent to $1.6361 per pound at 10:28 a.m. in New York, from $1.6624 yesterday. The Japanese currency declined to 91.95 per dollar, from 91.30. The greenback gained 0.2 percent to $1.5010 per euro. The yen depreciated to 137.98 per euro after earlier trading at 138.23, the weakest level since Aug. 10.
Traders are increasing bets the U.S. central bank will raise benchmark lending rates by the first quarter of next year. The probability of an increase in the benchmark interest rate from a record low range of zero to 0.25 percent at policy makers’ March 2010 meeting rose to 42 percent from 37 percent yesterday, Bloomberg data shows.
Home Sales Climb
The dollar extended gains against the yen as sales of U.S. existing homes in September rose to the highest level in more than two years. Purchases jumped 9.4 percent to a 5.57 million annual rate, more than forecast and following a 5.09 rate in August, the National Association of Realtors said today in Washington. The median price fell at the slowest pace in a year.
The dollar is likely to rally “for a couple years” as people who have taken loans are unable to repay them, said Robert Prechter, founder of Elliott Wave International Inc.
“It’s been a long build-up of excessive debt, we have a lot of IOUs that can’t be paid,” Prechter, who advised betting against U.S. equities three months before the market peaked in October 2007, told Bloomberg Radio. “When they’re defaulted upon, there’s deflation.”
