Dollar Is Near Two-Month High on Fed’s Outlook, Recovery Signs

Dec. 29 (Bloomberg) -- The dollar traded near a two-month high against the yen on speculation the Federal Reserve may end emergency stimulus measures as the economy recovers.

The U.S. currency was set to gain versus the euro for a second day before a report that economists said will show consumer confidence rose this month. The yen may extend its losses against most of its 16 major counterparts on prospects the Bank of Japan will be the last major central bank to start raising interest rates.

“The market is sensitive to rising expectations for an earlier exit by the Fed,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo. “The Bank of Japan may have to add more monetary easing or introduce more aggressive measures to arrest deflation. Wide yield differentials between the U.S. and Japan increase selling pressure for the yen.”

The dollar bought 91.68 yen at 8:42 a.m. in Tokyo from 91.63 in New York yesterday. The U.S. currency rose to 91.87 on Dec. 22, the strongest level since Oct. 27. The dollar traded at $1.4374 per euro from $1.4378 yesterday. The euro fetched 131.74 yen from 131.76 yen.

The New York-based Conference Board’s consumer confidence index probably rose to 53 this month from 49.5 in November, according to the median estimate of economists in a Bloomberg News survey showed.

U.S. Data

Property values in 20 metropolitan areas in the U.S. probably fell 7.2 percent in October from a year earlier, the smallest drop since 2007, according to the median forecast in a separate Bloomberg survey before a report today from S&P/Case- Shiller.

Futures trading in Chicago showed yesterday a 60 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, up from 46 percent odds a week ago.

The Fed proposed a program to sell term deposits to banks to help mop up some of the $1 trillion in excess reserves in the U.S. banking system. The proposal, subject to a 30-day comment period, “has no implications for monetary policy decisions in the near term,” the central bank said in a statement.

Ten-year U.S. yields reached 3.85 percent yesterday, the highest level since Aug. 10. The Treasury’s sale of $44 billion in two-year notes yesterday drew a yield of 1.089 percent, the highest level since August.

The yield premium of 10-year notes over similar-maturity Japanese bonds reached 2.53 percentage points on Dec. 24, the highest level in two years, increasing returns on dollar- denominated assets. The gap held near that level yesterday.