Commerce Department data showed that US housing starts surged 4.8 percent to a seasonally adjusted annual pace of 1.19 million units, underpinning a theme of strength in the USA economy.
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The dollar rose 0.1 percent against the yen to 106.20 yen, after hitting 106.53 yen on Tuesday, its highest level since June 24 when markets were shaken by Britain’s surprise vote to exit the European Union.
The dollar index .dxy , which tracks the greeback against six major currencies, rose to 97.125, its highest level since mid-March.
Fed funds futures rates show investors see nearly a 50/50 chance that the USA central bank raises rates by its December meeting, according to CME Group’s FedWatch tool.
The U.S. dollar USDJPY, +0.68% bought ¥106.92 late Wednesday in NY, compared with ¥106.12 late Tuesday in NY. Citigroup Inc.’s U.S. Economic Surprise Index, which measures whether data beat or missed forecasts, rose to the highest since January 2015 following reports showing stronger payrolls and retail sales. Market expectations that the Bank of Japan will further expand its monetary easing at its policy meeting next week and the government will compile a fiscal stimulus package worth 20 trillion yen also increased traders’ risk appetite, dealers said. Futures prices indicate a 43 percent chance of a rate hike by December, boosting the dollar’s relative allure.
“There’s certainly a growing crowd of investors that are warming up to the notion that the abundance of strong USA economic data may light a fire under the Fed and lead to a surprise rate hike by year-end”, Stephen Innes, a senior trader at Oanda Corp.in Singapore, said in an e-mailed note. The European Central Bank will hold a regular policy meeting on Thursday, its last before an eight-week summer break.
It is not expected to take any additional easing steps but could sound a dovish tone.
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Meanwhile, sterling outperformed, rising 0.8 per cent to US$1.3216 after a Bank of England survey showed no clear evidence of slowing economic activity after last month’s Brexit vote and Bank of England policymaker Kristin Forbes said the central bank could potentially wait to cut borrowing costs, saying that now was “a good time to “keep calm and carry on”.
