Laura Matthews
NEW YORK (Reuters) – The dollar rose against other major currencies on Friday, hitting a new eight-week high against the yen, as data showed a strong U.S. economy and the Federal Reserve’s patient approach to cutting interest rates contrasted with more dovish peers.
US business activity hit a 26-month high in June as employment recovered, while price pressures eased significantly, suggesting the recent slowdown in inflation is likely to be sustained.
The index, which measures currencies against six others, rose 0.2% to 105.81 in afternoon trading in New York. It jumped 0.41% overnight, erasing a week’s decline after a second straight rate cut by the Swiss National Bank and the Bank of England hinting at a cut in August.
Thierry Wiseman, global FX and foreign exchange strategist at Macquarie in New York, said the dollar will continue to strengthen as political uncertainty in Europe could ultimately undermine business and consumer confidence.
“Even if the euro or pound sterling rises, I can’t imagine it will be a strong and lasting rally,” Wiseman said. “I would be more inclined to sell during this rally and then close at a lower point.”
The Japanese yen will be important for currency traders to watch next week, according to Matt Weller, head of market research at StoneX, Grand Rapids, Michigan.
The U.S. Treasury on Thursday added Japan to a list of countries it is monitoring for possible designation as currency manipulators, a “diplomatic caution against additional intervention,” Weller said. China is among the other countries on this list.
The yen came under pressure after the Bank of Japan’s decision last week to delay cutting its bond-buying stimulus until its July meeting. The dollar was last trading 0.4% higher at 159.59 yen, after hitting a session high of 159.62.
The Bank of Japan, under orders from Japan’s Finance Ministry, spent about 9.8 trillion yen ($61.64 billion) to lift the currency from a 34-year low of 160.245 per dollar hit on April 29.
Japan’s top currency diplomat Masato Kanda said on Friday that Tokyo was ready to take further “decisive” action against “speculative, excessive volatility.”
Meanwhile, the dollar held a nearly five-week high against sterling, which remained unchanged at $1.2649, its weakest since mid-May. The Bank of England left rates unchanged this week, but some policymakers said the decision not to cut interest rates was a “finely balanced” decision.
Data on Friday showed UK retail sales rose more than expected in May, largely due to milder weather.
A separate report showed UK business growth slowed to a seven-month low in June due to nervousness about the July 4 general election.
The euro was also unchanged at $1.0697 after a series of preliminary surveys for June showed service sector activity in France contracted this month while activity in the German economy slowed.
“Overall, it appears that the FX market is hesitant to make any major moves ahead of the French elections in late June/early July, as that remains the focus of the European FX market,” Eric Nelson, macro strategist at Wells Fargo, said in September . London.