By Laura Matthews
NEW YORK (Reuters) -The dollar rose higher against other major currencies on Friday, hitting a new eight-week high against the yen as data showed a strong U.S. economy and as the Federal Reserve’s patient approach to interest rate cuts Reserve contrasted with more dovish colleagues.
US business activity reached a 26-month high in June, amid a recovery in employment, while price pressures eased significantly, suggesting that a recent slowdown in inflation is likely to continue.
The , which measures the currency against six others, rose 0.2% to 105.81 in afternoon trading in New York. Yields rose 0.41% overnight, erasing declines for the week, following a second straight rate cut at the Swiss National Bank and indications from the Bank of England of a cut in August.
Thierry Wizman, global currency and interest rate strategist at Macquarie, in New York sees continued dollar strength as political uncertainty in Europe could ultimately erode business and consumer confidence.
“Even if the euro or sterling were to rise, I can’t imagine this would be a strong or sustainable rally,” Wizman said. “I would be more inclined to sell into that rally and then cover at a lower point.”
The Japanese yen will be important for FX traders to watch next week, according to Matt Weller, head of market research at StoneX, Grand Rapids, Michigan.
The U.S. Treasury Department on Thursday added Japan to a list of countries it is monitoring for possible labeling as a currency manipulator, “a diplomatic warning against additional intervention,” Weller said. China, among others, is on the list.
The yen was under pressure after the Bank of Japan’s decision last week to delay the tapering of bond stimulus until its July meeting. The dollar last traded 0.4% stronger at 159.59 yen, after hitting a session high of 159.62.
The BOJ, at the insistence of Japan’s finance ministry, spent about 9.8 trillion yen ($61.64 billion) to lift the currency from a 34-year low of 160.245 per dollar, reached on April 29.
Japan’s top currency diplomat Masato Kanda said Friday that Tokyo stands ready to take further “decisive” action against “speculative, excessive volatility.”
Meanwhile, the dollar maintained its five-week high against sterling, which remains flat at $1.2649, near its lowest since mid-May. The BoE kept rates unchanged this week, but some policymakers said the decision not to cut was “balanced.”
Data on Friday showed retail sales in Britain rose more than expected in May, largely due to milder weather.
A separate report showed that UK business growth slowed to the lowest level in seven months in June, weighed down by nerves over the July 4 general election.
The euro was also flat at $1.0697 after a series of preliminary surveys for June showed service sector activity in France contracted this month, while activity across the German economy slowed.
“Overall, it appears the currency market is hesitant to make any major moves before the French elections in late June/early July, as that remains the biggest focus for European currencies in particular,” said Erik Nelson, macro strategist at Wells Fargo. London.
