FOREX-Dollar hits 27-mo high vs yen on US rate view
By John Parry
NEW YORK, Nov 25 (Reuters) - The dollar rose to a new 27-month high against the yen in holiday-thinned trade on Friday, bolstered by the market's return to the view that rising U.S. interest rates will give the greenback a lift for some time yet.
The dollar also rose against the euro.
These gains showed the U.S. currency "has continued to recover from Tuesday's minutes of the November 1 Fed meeting which introduced some uncertainty into the longer term outlook for U.S. interest rates and triggered the notion the Fed may be less aggressive (in raising interest rates)" said Alex Beuzelin, foreign exchange market analyst with Ruesch International in Washington DC.
The central bank's minutes from its Nov 1 meeting revealed some policy-makers were concerned about the risk of going too far with the Fed's rate-rise campaign.
"But the market has digested those minutes and the reality remains that in the near term the Federal Reserve will continue to outpace its central bank counterparts in Europe and in Japan, which means the dollar's rate advantage will get better," Beuzelin added.
In 2005, the dollar has rallied as rising U.S. interest rates and yields have burnished the appeal of dollar-denominated deposits to foreign investors.
Midmorning in New York, the dollar gained against the yen to new 27-month highs at 119.69 yen, up 0.6 percent from late Thursday, according to Reuters data. The euro traded at $1.1733, down 0.4 percent.
Against the Swiss franc, the dollar traded up 0.3 percent at 1.3186 francs. Earlier, the Swiss currency rallied against the euro and dollar after stronger-than-expected Swiss data.
The moves took place in thin trading conditions, U.S.-based traders said, with desks having only skeleton staffing in the wake of Thursday's U.S. Thanksgiving holiday. With little U.S. economic data to speak of, major currencies were rangebound as analysts braced for next week's array of potentially market moving U.S. economic reports.
Next week brings a data on gross domestic product for the third quarter, the core PCE price index -- an inflation gauge the Fed watches closely -- the Institute for Supply Management November manufacturing report and the November non-farm payrolls report, for which economists' median forecast is a rise of 210,000 jobs.
The currency market has high expectations for the jobs report, ISM manufacturing survey and inflation data, "which all point towards continued strength in the economy and favor the U.S. dollar," said Tim Mazanec, director and senior currency strategist with Investors Bank & Trust in Boston.
The U.S. Federal Reserve's credit-tightening campaign, with expectations for further increases, has helped drive the dollar up more than 15 percent against the euro and yen this year.
The Federal Reserve is expected to raise rates next month to 4.25 percent from the current 4 percent, while the European Central Bank is seen increasing its refi rate by 25 basis points to 2.25 percent next Thursday.
The yen was also knocked against the dollar in thin post-Thanksgiving trade as mixed Japanese inflation data cemented expectations that interest rates in Japan won't rise soon.
"The yen remains the weakest link due to the benign rate outlook in Japan," said Niels Christensen, senior currency strategist at Societe Generale in Paris.
China disappointed offshore investors with a one-year, $6 billion currency swap that priced the yuan at a weaker level than had been expected in the one-year forward markets.
(Additional reporting by Veronica Brown in London)
