By Kevin Buckland
TOKYO (Reuters) – The dollar hovered near a two-week high to the yen after its biggest one-day gain against major peers in four weeks as firm U.S. economic data all but eliminated fears about a recession.
The greenback was especially strong against the Japanese currency thanks to a surge in Treasury yields as traders pared back bets the Federal Reserve would be forced into aggressive easing next month.
Risk-sensitive currencies like sterling were firm as the improved economic outlook spurred a rally in equities.
The , which measures the greenback against six major peers including the yen, sterling and euro, was little changed at 103.20 after rallying 0.41% overnight, the most since July 18.
The dollar eased slightly to 149.11 yen, but remained close to Thursday’s high of 149.40, a level last seen on Aug. 2.
The Commerce Department said retail sales rose 1.0% last month, topping forecasts for a 0.3% gain. Separate figures showed 227,000 Americans filed for unemployment benefits last week, fewer than the 235,000 expected.
Traders are convinced the Fed will slash rates on Sept. 18, but had debated the size of the reduction. Odds currently stand at 25% for a super-sized 50 basis-point cut, down from 36% a day earlier, according to the CME Group’s (NASDAQ:) FedWatch Tool.
Surprisingly soft monthly payrolls data at the start of the month had pushed the odds of the larger cut to 71%.
“Growth is in a better spot and the consensus is again subscribing to the ‘soft landing’ thesis,” said Chris Weston, head of research at Pepperstone, pointing to 150 yen per dollar as the next level to watch for the currency pair.
“While there are always risks that could impact, there is little in the data flow now to really derail sentiment in the immediate near-term.”
Sterling edged up slightly to $1.2859, building on its overnight 0.21% advance. The British currency got an additional boost from solid GDP figures on Thursday.
The euro was flat at $1.0973, following a 0.36% slide in the previous session.
The risk-sensitive Australian dollar held steady at $0.66105 having advanced 0.2% the previous day after data showed a much-bigger-than-expected surge in jobs.
