Better than expected consumption figures from the U.S. helped to steady the greenback during the Asian trading session as it gave rise to continued speculation that the improvement to the economic recovery would offer a boost to yields on U.S. Treasuries. Currency strategists anticipate that, although trading is likely to be very thin as the year draws to a close, the greenback will be underpinned by the likelihood that the U.S. Federal Reserve might soon increase benchmark interest rates.
As reported at 11:32 a.m. (JST) in Tokyo, the USD/JPY pair traded at 104.36 Yen, a gain of 0.2% for the greenback and within striking distance of last Friday’s 5-year peak of 104.64 Yen; traders point out that there is resistance at the 105.00 Yen level which can be attributed to option-related offers. The EUR/USD traded at $1.3683, not far from last week’s 2-week trough at $1.3625, while the EUR/JPY was trading at 142.79 Yen, just off the 5-year peak of last week. The U.S. Dollar Index edged to 80.530 .DXY, moving nearer to the recently struck 2-week peak.
Is a Fed Rate Hike in the Offing?
According to the consumption data, the U.S. economy, the largest in the world and primarily driven by consumer spending, November’s figures were at the fastest pace in nearly six months, and the consumer sentiment reading struck a 5-month high. With inflation still tepid, that combined data has generated optimism that the recovery is a solid one and that the Fed might, as a result, consider a rate hike sooner rather than later.