The dollar surged to a two-month high against the yen on Wednesday, extending gains in the wake of data that showed US manufacturing has been expanding at its fastest pace in almost a year. The Institute for Supply Management said its index of national factory activity rose to 54.7 in April from 50.9 in March.
The reading was the highest since May 2006. Although separate data released on Tuesday showed that pending sales of existing US homes in March fell to their lowest level in four years, the upbeat manufacturing report was enough to give the dollar a boost, traders and analysts said.
"There were some buybacks in the dollar since the market has been tilted toward short dollar positions," said Koji Fukaya, senior currency strategist for Deutsche Securities. Data released on Friday showed that International Monetary Market speculators increased their net short dollar positions to $23.48 billion in the week ending April 24, from around $20.95 billion the previous week, according to Reuters calculations.
The solid manufacturing data, however, wasn't enough to drastically alter market expectations for the Federal Reserve to cut interest rates later this year from 5.25 percent, Fukaya said, adding that it was hard to be upbeat about the outlook for the US economy and the dollar at this stage.
Traders said gains in the dollar could be tempered by caution ahead of the release of US jobs data on Friday, as well as by the fact that recent US indicators have been mixed. The dollar stood at 119.95 yen up 0.2 percent on the day. It earlier rose as high as 120.15 yen on electronic trading platform EBS, its highest level since February 27.
The euro slid 0.2 percent to $1.3575 having pulled back from a record high of $1.3683 hit on EBS last week. Against the yen, the euro was little changed at 162.90 yen. The single currency rose as high as 163.31 yen the previous day, the highest since its 1999 launch.
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