Dollar Gains on Speculation U.S. Companies Bringing Back Funds

Dec. 28 (Bloomberg) -- The dollar gained for the first time in four days against the euro and yen on speculation U.S. companies are bringing back earnings on overseas assets before the end of the year.

The greenback also strengthened on prospects U.S. reports tomorrow will show the world’s largest economy is recovering, backing the case for the Federal Reserve to withdraw emergency stimulus measures. The yen fell against all of its 16 major counterparts after Japanese Prime Minister Yukio Hatoyama unveiled a record budget of 92.3 trillion yen ($1 trillion).

“There seems to be last-minute repatriation by U.S. firms before year-end,” said Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA. “This is helping to boost the dollar.”

The dollar rose to $1.4375 per euro as of 10:46 a.m. in Tokyo from $1.4411 in New York on Dec. 25. The U.S. currency advanced to 91.56 yen from 91.11 yen. The euro traded at 131.61 yen from 131.64 yen.

Property values in 20 metropolitan areas in the U.S. probably fell 7.1 percent in October from a year earlier, the smallest 12-month drop since 2007, according to a Bloomberg News survey of economists before a Dec. 29 report from S&P/Case- Shiller. The New York-based Conference Board’s consumer confidence index may rise to 53 in December from 49.5 in November, a separate Bloomberg survey showed before the report is released on the same day.

Fed Rate Bets

Futures on the Chicago Board of Trade showed a 55 percent chance on Dec. 25 the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, up from 48 percent a day earlier. The central bank next meets to review borrowing costs on Jan. 28, 2010.

The greenback may extend gains versus the yen on speculation that rising U.S. debt yields will increase returns on dollar-denominated assets. Ten-year yields were at the highest level in more than four months before the Treasury sells $44 billion in two-year notes today in the first of three auctions this week totaling a record-tying $118 billion.

“Medium- to long-term U.S. yields may rise further should this week’s U.S. economic data releases beat forecasts and Treasury auctions not attract sufficient demand,” said Masafumi Yamamoto, chief foreign-exchange strategist in Tokyo at Barclays Capital. “Hence, the dollar-yen may test its October high.”

The yield on the benchmark 10-year note rose one basis point, or 0.01 percentage point, to 3.81 percent, according to BGCantor Market Data. That’s the highest level since Aug. 10.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners, was little changed at 77.770. Against the yen, the dollar reached 92.32 on Oct. 27, the highest level since Sept. 21.

Japan’s Budget Proposal

Japan’s currency weakened after Hatoyama’s proposal for the fiscal year that starts April 1, released last week in Tokyo, said the government will sell 44.3 trillion yen of new debt to help fund a revenue shortfall.

Hatoyama’s Cabinet has an approval rating of 50 percent, down 18 percentage points, according to a Nikkei Inc. and TV Tokyo Corp. survey. The disapproval rating rose 18 points to 42 percent from the November survey.

“Concerns over a ballooning fiscal deficit and Hatoyama’s declining popularity would probably bode ill for the currency,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. Ltd. in Tokyo. “There isn’t a lot of good news for the yen at this time.”

Hatoyama’s budget, the first since his Democratic Party of Japan took office in September, reflects campaign promises to address economic stagnation by lifting the spending power of the nation’s households.