November 3, 2014 / 8:51 AM / 5 years ago

Central bank moves drive market, dollar at new highs vs yen, euro

NEW YORK (Reuters) - The dollar topped 114 yen on Monday, its strongest point in nearly seven years, extending gains spurred by last week’s Bank of Japan surprise decision to boost its already massive bond-buying stimulus in an effort to lift a moribund economy.

U.S. one-hundred dollar bills are seen in this photo illustration at a bank in Seoul August 2, 2013. REUTERS/Kim Hong-Ji

A broad-based dollar-buying trend over the last few months pulled the dollar index, which measures the greenback against a basket of currencies, to a fresh four-year high.

In New York trade, the greenback was given a brief push higher on an Institute of Supply Management report showing manufacturing expanding more than expected in October.

However, this was juxtaposed against two unexpectedly weak reports, one from financial data firm Markit saying U.S. growth in manufacturing slowed in October to its lowest rate since July, and another from the U.S. Commerce Department stating U.S. construction spending fell for a second straight month in September.

Sellers also targeted the euro, which slipped to a new two-year low against the dollar ahead of a European Central Bank meeting this week which will be watched for any indication that policy will be eased further to shore up the euro zone’s stuttering economy.

The dollar hit a new four-year high against a basket of major currencies .DXY of 87.406, adding to gains made last week on the BoJ’s decision and the Federal Reserve’s policy statement that was less dovish than expected. It was last at 87.285, up 0.42 percent.

The dollar surged to 114.20 yen, its highest since December 2007, before slipping back to 113.75, up 1.27 percent on the day.

“Today is more about position adjustment, as there are no real big headlines. It seems more of some people trying to get into this rally before year-end because we really just have one more month to go for the year’s trading,” said Lane Newman, director of foreign exchange at ING Capital Markets in New York.


Even the struggling euro gained ground on the yen, rising to a seven-month high of 142.56 yen, before slipping back to 142.12, up 1.05 percent on the day.

But against the dollar, the euro fell as low as $1.2441 in Asian trading, according to Thomson Reuters data, its weakest since August 2012. It was last trading at $1.2487, down 0.28 percent on the day.

Euro zone manufacturing activity expanded slightly more slowly than first thought last month as further discounts at the factory gate failed to drive up new orders, a business survey showed on Monday.

Traders suspect the euro will stay on the defensive in the lead-up to Thursday’s ECB policy review.

“We’ve had surprises from central banks last week in the form of (the) Riksbank and the Bank of Japan, and pressure is obviously on the ECB,” said Mitul Kotecha, head of FX strategy, Asia-Pacific for Barclays in Singapore.

Additional reporting by Jemima Kelly in London, Asayuki Kitano in Singapore and Ian Chua in Sydney; Editing by Andrew Heavens, Susan Fenton, Alan Crosby and James Dalgleish

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