The dollar rose for the first time in more than a month against the yen after central banks worldwide pumped cash into money markets to alleviate concern about a credit squeeze.
Central banks in the U.S., Europe, Japan, Australia and Canada added about $135.7 billion to the banking system in an attempt to avert a crisis of confidence in global credit markets. A U.S. government report on Aug. 15 may show an inflation measure slowed to an annual rate of 2.4 percent last month.
“The markets are getting a short-term relief,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “Central banks want to stave off any panic.”
The U.S. currency rose 0.3 percent this week to 118.40 against the yen, from 118.05 on Aug. 3. It was the first weekly gain since the period ended July 6, and the biggest increase since the week ended June 22.
The dollar also strengthened 0.6 percent to $1.3693 per euro, from $1.3773. The euro fell 0.3 percent to 162.13 against the yen, from 162.58.
“Any time you bring uncertainty into the market, your chance of maintaining a profitable position in the euro-yen diminishes greatly,” said Joe Trevisani, chief market analyst at FX Solutions LLC in Saddle River, New Jersey.
U.S. Inflation
The Bureau of Labor Statistics may report on Aug. 15 that annual consumer price inflation slowed to 2.4 percent in July, down from 2.7 percent during June, according to the median estimate in a Bloomberg News survey of 16 economists. Excluding food and energy costs, core inflation may hold at 2.2 percent.
The Federal Reserve yesterday, in a second day of action in concert with the European Central Bank, provided $38 billion of reserves and pledged further funds “as necessary,” in a statement unprecedented since the aftermath of the Sept. 11, 2001, terrorist attacks. The ECB loaned 61.05 billion euros ($83.6 billion) after injecting a record amount on Aug. 9.
“The foreign exchange market is very skittish,” said Paresh Upadhyaya, who helps manage $29 billion in currency assets at Putnam Investments in Boston. “The price action has been dominated by high volatility and investors are getting chopped up. No one feels that the credit issues are behind us.”
The Bank of Japan also added 1 trillion yen ($8.4 billion) to the financial system and the Reserve Bank of Australia lent the most in more than three years.
The move came after losses associated with U.S. subprime mortgages and asset-backed securities rippled through credit markets and drove money market rates higher.
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