Dollar edges up as Syria attack looks less likely

NEW YORK, MarketWatch, (11/9) — The U.S. dollar gained against the Japanese yen on Tuesday, as the market responded to diplomatic efforts to avert a U.S. military strike against Syria and strong retail and industrial data in China. The dollar rose to 100.31 yen from 99.59 yen late Monday. The Japanese yen is a safe-haven currency and the latest news surrounding the conflict in Syria pointed to an easing in tensions. Syria has accepted Russia’s proposal to put its chemical weapons under international control for dismantling, the Associated Press reported Tuesday. U.S. President Barack Obama — who is seeking Congressional approval for a military strike on Syria in retaliation for Syria’s use of chemical weapons against civilians — has called the idea “a potentially positive development.” But a French proposal for a United Nations resolution on Syria was rejected by Russia, which said it would submit its own plan, according to The Wall Street Journal. The ICE dollar index, which measures the dollar against a basket of six other currencies, was slightly higher at 81.83, compared to 81.791 late Monday in North America. The WSJ Dollar Index, which uses a slightly larger comparison base, edged up to 74.08 from late Monday’s 74.03. The stronger-than-expected Chinese data, which included a 10.4% jump in industrial production and 13.4% increase in retail sales in August, as well as waning geopolitical risk from Syria were the main drivers for the day, said Steven Englander, global head of G10 FX strategy at Citi. The Australian dollar rose to 93.06 U.S. cents from 92.28 U.S. cents. The National Australia Bank’s August business-confidence survey showed sentiment at its highest in more than two years. The New Zealand dollar rose to 80.62 U.S. cents from 80.14 U.S. cents late Monday. Positive Chinese economic data tend to support the Australian and New Zealand currencies, as China is a major trading partner for these countries. Some of the currency action in Japan came from the direction of Japanese yields. “Even though U.S. yields are pretty much near recent highs, Japanese yields have really pulled back,” said Citi’s Englander. The divergence in direction is important, he added, especially as yields across the globe have risen. “Japan is buying a lot of bonds and there’s a cumulative impact to that buying,” said Englander. “In a world where the U.S. is pulling rates up, the fact that [Japanese rates] are going down says something about the amount of liquidity they’re putting into the system.” Currencies also continued to react to expectations of a reduction in the Federal Reserve’s monetary stimulus next week. On the policy front, many economists stuck to the consensus forecast for the Federal Reserve to begin tapering its $85-billion-a-month bond purchases at the central bank’s Sept. 17-18 meeting. Société Générale wrote Tuesday that “the launch of Fed tapering is imminent, and we expect this to be quick, with [quantitative easing] ending in March 2015. We see the first rate hike in mid-2015.” Crédit Agricole economists, meanwhile, said that “further U.S. dollar gains may need to wait for when the Fed finally begins to taper next week.” Until then — although some upcoming data may help the dollar if they’re strong — “tapering ncertainty will likely act to restrain any topside,” they wrote Tuesday. For the short term, Crédit Agricole said, gains may also be capped by foreign selling of U.S. assets amid what they saw as the recent underperformance of U.S. bonds and equities. In other major currencies, the euro was essentially unchanged at $1.3261 late Monday, while the British pound edged up to $1.5728 from $1.5701.