LONDON: The dollar rose to a one-month high against the yen on Thursday, extending gains after recent upbeat US data pushed Treasury yields higher and cooled expectations of further monetary easing by the Federal Reserve.
The dollar climbed on stop-loss buying, extending a rally begun earlier this week after strong retail sales data led some analysts to suggest a slowdown in US growth may be temporary.
Currency traders said that if US Treasury yields rose further the dollar could add to gains against the yen given the strong relationship the currency pair has with yield spreads between US and Japanese government bonds. Higher US yields usually widen the spread over JGBs and lift the dollar.
The greenback touched a high of 79.361 yen on trading platform EBS, its highest since mid-July, and advanced past its 200-day moving average of 79.20. The dollar last changed hands at 79.22 yen, up 0.3 percent on the day.
The dollar index which measures the greenback against a basket of currencies, rose to a two-week high of 82.881.
"We are seeing an underlying trend for dollar outperformance, partly on the back of euro zone debt problems, which sees reserve managers prefer the US currency, and more generally due to some decent US data," said Geoff Kendrick, currency analyst at Nomura.
"Dollar/yen could rise to 80 yen, but a lot depends how forthcoming US data is and whether Treasuries will continue to be sold off."
Data on Wednesday showed US industrial output rose in July at its fastest pace since April.
This followed surprisingly strong US retail sales figures that dampened expectations the Fed will launch another round of bond-buying, or quantitative easing, as early as September.
On Thursday, the latest weekly initial claims report and the Philly Fed survey of factory activity in the mid-Atlantic region for August will be watched to assess whether the world's largest economy is regaining momentum in the third quarter.
"The US improvement is in contrast to the persistent weakness elsewhere," said Callum Henderson, global head of FX research at Standard Chartered, Singapore.
"So that's dollar positive because (interest) rate spreads move in favour of the dollar," he said, adding that the dollar may rise towards 80 yen in the short term.
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