SINGAPORE: The dollar surged to a one-month high against the yen on Thursday, extending gains after this week's upbeat US data gave a boost to Treasury yields and cooled expectations of monetary easing by the Federal Reserve.
The dollar climbed on stop-loss buying, adding to a rally that began earlier in the week after strong retail sales data bolstered the view that a recent slowdown in US growth will prove temporary.
The greenback touched a high of 79.35 yen on trading platform EBS, its highest level since mid-July. The dollar last changed hands at 79.34 yen, up 0.5 percent from late US trade on Wednesday.
"We are seeing increasing signs of stabilisation in the US," said Callum Henderson, global head of FX research for Standard Chartered Bank in Singapore.
"The US improvement is in contrast to the persistent weakness elsewhere. 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.
Data on Wednesday showed that US industrial output rose in July, while home-builder sentiment in August hit its highest level in more than five years.
Such data came in the wake of a surprisingly strong reading on US retail sales that dampened expectations the Fed will launch another round of bond-buying, or quantitative easing, as early as September.
Analysts warned, however, that the dollar's rise versus the yen could lose steam if coming US indicators disappoint, and a US-based currency trader said it was hard to tell whether the dollar's rise marked the start of a medium-term trend or a "big head fake", especially since the rally has taken place in thin, summertime market conditions.
EVENT RISK IN SEPTEMBER
Not all of the data released on Wednesday was rosy, with a gauge of manufacturing in New York state showing a contraction in August for the first time since October 2011.
"It's too early to celebrate with both hands in the air," said Daisuke Karakama, market economist for Mizuho Corporate Bank in Tokyo.
The weak reading on manufacturing in New York state came ahead of the Philadelphia Fed's gauge of factory activity in the mid-Atlantic region, due later on Thursday.
"I think corporate sentiment provides the best gauge of current conditions... You have to think about what might happen if the Philly Fed index turns out to be weak. That could change the trend again," Karakama said.
In any event, the dollar will find it tough to break above the 79.50 yen to 80.00 yen region unless there is another strong catalyst, given the potential for dollar-selling by Japanese exporters at such levels, Karakama added.
The euro eased 0.1 percent to $1.2282, with moves subdued as investors await details on a new European Central Bank programme to help reduce the borrowing costs of Spain and Italy that the central bank is now considering.
"Euro/dollar is in a range for now but we still expect it to move lower in September on the prospect of more headlines out of Europe, a lot of event risk in September, and rate cuts as well," said Henderson at Standard Chartered.
"Our forecast for euro/dollar is $1.18 by the end of the quarter," he added.
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