By James Ramage
The dollar gained against the euro and the yen Thursday as
upbeat numbers for U.S. inflation, unemployment and manufacturing
spurred interest-rate hopes.
The dollar inched up 0.1% to 118.14 yen in afternoon trade,
hovering below its highest level in more than seven years. The euro
slipped 0.1% to $1.2538, about two cents above a two-year low.
The greenback's gains came after a measure of Mid-Atlantic
manufacturing came in well above analysts' forecasts. The Federal
Reserve Bank of Philadelphia's index of general business activity
rocketed to 40.8 in November, its highest in almost 21 years. The
index was at 20.7 in October.
In addition, consumer prices in the U.S. were unchanged in
October from a month earlier, the latest sign of weak inflation
amid a decline in energy prices and slow growth abroad.
Finally, the number of new claims for jobless benefits fell last
week and remain below 300,000, another signal of an improving labor
market. Initial claims for unemployment benefits fell by 2,000 to
291,000 in the week ended Nov. 15, the Labor Department said.
Economists expected 283,000 claims.
The positive data suggest that the Federal Reserve has more
scope to raise interest rates, which would benefit the dollar by
making U.S. assets more attractive to investors. While the data
aren't the central bank's preferred gauges for either inflation or
the labor market, they still provide guidance for assessing the
health of the U.S. economy.
"The dollar should continue to strengthen, especially if the
U.S. data continues to come in stronger," said Sireen Harajli,
foreign exchange strategist at Mizuho Bank.
Mizuho Bank revised its forecast for the greenback to reach 120
yen by year's end, from 118 yen, Ms. Harajli said. The bank
predicts the euro will trade at $1.24 by the end of the year and
fall to $1.20 sometime in 2015.
"We expect further strength in [the dollar-yen pair]," Ms.
Harajli said. "The Bank of Japan will most likely add more stimulus
to the economy next year, so we could see [the dollar-yen pair]
pushing beyond 120 yen."
The Bank of Japan maintained its easing policy at a meeting
Wednesday and voted to uphold the enlargement of its bond-buying
stimulus program, which was announced last month.
Japan's efforts to boost growth and inflation, and similar moves
in Europe, have prompted investors to bet heavily over the past
several months that the dollar would rise against the yen and euro.
Those investors expect the Federal Reserve will raise interest
rates sooner than the BOJ or the European Central Bank.
Market expectations currently predict the Fed to raise rates in
September 2015.
Write to James Ramage at james.ramage@wsj.com