Dollar up as US data, Japan intervention talk follow rate comments

The dollar strengthened against the yen in Asia Thursday as upbeat US data and speculation of a Japanese intervention helped cement gains from talk of a Federal Reserve interest rate hike next month.

After dipping to an 18-month low around 105.50 yen on Tuesday, the greenback has enjoyed a minor rally in the past two days after two of the US central bank’s regional heads raised the possibility of tighter borrowing costs.

On Thursday, the dollar was at 107.08 yen, up from 107.03 yen in New York Wednesday. It also rose against the euro, which dipped to $1.1485 from $1.1488. The single currency was changing hands at 123.00 yen from 122.96 yen.

Trading was thin with holidays in Japanese markets for most of the week.

“Some investors probably feel that there is an increased possibility of (Japanese) government intervention… and therefore decided to take some of their yen bids off the table,” IG Markets Singapore analyst Bernard Aw said in a note. “This helped (dollar) to strengthen broadly,” he said.

The greenback won support Tuesday after Atlanta Fed President Dennis Lockhart called a June rate increase “a real option” while San Francisco chief John Williams said he would lend support to a hike if the economy continued on its recovery track.

There had been doubts the Fed would raise interest rates next month after data last week showed consumer spending rose only slightly in April, while the economy grew a lot slower than expected in January_march. A well-below-forecast reading on US manufacturing activity this week compounded the problems.

But figures Wednesday showed an improvement in the key services sector, while new orders for US manufactured goods surged.

However, the dollar is still struggling against the yen and is almost 13 percent down from the start of the year, with a shock decision last month by the Bank of Japan not to widen its stimulus ramping up the pressure.

The greenback also rose against most emerging market currencies, putting on almost one percent against the South Korean won, 0.5 percent against the Indonesian rupiah and 0.3 percent versus the Malaysian ringgit.