The dollar rose against most currencies on Wednesday, hitting its highest level against the yen in more than three months on year-end buying and a report suggesting the US economy is on a stable path to recovery. Data showing US Midwest business activity expanded far more than expected in December supported the dollar, analysts said.
Liquidity was thin ahead of the new year, however, with Japanese markets closed on Thursday and Friday, and European and US markets closed on Friday. "The trading ranges have been quite large today. It's end-of-the-year positioning and fund managers are closing their portfolios," said Amelia Bourdeau, senior currency strategist at UBS in Stamford, Connecticut. "There's also the view that the US is recovering and this month we've seen strong US data support the dollar."
Bourdeau, however, said she is looking to next week's US non-farm payrolls data for a clearer picture of where the economy is heading. The December jobs report is due on January 8 and some economists are expecting the data to turn positive in the first quarter, after the number of jobs lost shrank to 11,000 in November.
The dollar reached a high of 92.77 yen, according to Reuters data, its highest since September 8. By late afternoon, the dollar was at 92.42 yen, up 0.5 percent on the day. Concerns about Japan's fiscal health also weighed on the yen after rating agency Standard & Poor's said Japan's credit rating could be in danger if policy initiatives fail to stabilise and reduce the country's debt burden.
The dollar's rise on Wednesday pushed it to a 7.1 percent gain versus the yen in December, on track for its best monthly performance since February. For 2009, the greenback was up 2.1 percent against the Japanese currency. The euro was last down 0.2 percent against the dollar to $1.4326, after earlier touching a one-week low. It was well below the previous day's two-week high.
Earlier in the session, persistent concerns about how the UK will fund its ballooning fiscal deficit dragged sterling to a two-and-a-half-month low against the dollar. But the pound later recovered and was last up more than 1 percent at $1.6064. Analysts cautioned that the move was more likely driven by year-end flows and thin volume. The ICE Futures' dollar index rose 0.1 percent to 77.897 and was up 4.2 percent on the month, on pace for its best monthly gain since February. For 2009, however, the dollar index was down 4 percent.
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