Dollar strengthens on signs of US recovery

THE dollar yesterday reached the strongest level in six weeks against the euro and a three-month high versus the yen as reports suggested the US economy is gaining momentum.

The US currency gained for a fourth straight week against the euro, rebounding by more than 2 cents from its record low set a month ago, as traders cut bets the Federal Reserve will reduce interest rates. Reports showed a third consecutive month of gains in durable goods orders and the biggest jump in new home sales in 14 years in April.

“You may start to see the US economy doing better, starting from the second quarter,” said Joe Trevisani, chief market analyst at FX Solutions. “This will definitely support the dollar.”

The dollar climbed 0.5% last week to $1.3442 per euro. It touched $1.3412 yesterday, the strongest since April 11.

The yen dropped to an all-time low of 164.02 per euro as investors bought higher-yielding assets funded by loans in the Japanese currency, in a practice known as the carry trade. The yen fell yesterday after North Korea test-fired missiles into the Sea of Japan, raising concern that tension in the region will rise.

Japan’s currency fell 0.1% this week to 163.71 per euro and touched the lowest since the currency debuted in January 1999. The yen has weakened against all 16 major currencies tracked by Bloomberg this year, falling 4% against the euro and 2.2% versus the dollar.

Japan’s benchmark interest rate, at 0.5%, is the lowest among major economies. It compares with the Federal Reserve’s 5.25% target and the European Central Bank’s 3.75% key rate.

Canada’s dollar surged to a 30-year high against its US counterpart as data pointed to resilience in the economy, raising speculation of an interest-rate increase by the Bank of Canada.