The dollar rose against the yen and euro on Friday in scant volume, with many major markets still closed after the Christmas holiday.
The greenback approached a 7-1/2-year peak against the yen and moved close to a 2-1/2-year high versus the euro based on the view the U.S. economy is expanding at a fast enough clip that the Federal Reserve could consider ending its near-zero interest-rate policy in mid-2015, analysts said.
“You have to be long-term bullish on the dollar next year. There’s going to be a dip-buying mentality” said Rob Zukowski, senior technical analyst at 4Cast Ltd. based in New York.
Trading activity will likely pick up only a tad early next week due to another shortened week when markets will be closed on New Year’s Day.
Data on Tuesday that showed the U.S. economy growing at its fastest quarterly pace in 11 years underscored the divergence in paths between the world’s largest economy and those of Japan and Europe, where monetary policy is expected to remain loose to boost growth and avert deflation.
Data released on Friday highlighted some of the struggle the Bank of Japan faces. The year-on-year rise in Japan’s core consumer prices slowed to 2.7 percent in November from 2.9 percent in October as a result of the steep drop in crude oil prices.
Widening differentials between U.S. and record-low Japanese and German yields should favor the dollar as more traders return from holidays.
U.S. two-year Treasuries yield held a 0.84 percentage point premium over the comparable German Schatz yield, which was the largest since early 2007. It held a 0.74 point yield premium over two-year Japanese government debt, close to the biggest level since May 2010, according to Reuters data.
After a dip to 120.08 yen the dollar was up 0.2 percent at 120.38, within sight of a 7-1/2-year high of 121.86 set on Dec. 7 on the EBS trading system.
The dollar also regained some ground against the euro after two days on the retreat.
The euro inched down 0.4 percent to $1.2176, edging back towards a 28-month trough of $1.2165 reached on Tuesday in reaction to the unexpectedly strong U.S. third-quarter gross domestic product growth.
The dollar index, which tracks the greenback’s value against a basket of currencies, was up nearly 0.1 percent at 90.038. On Tuesday, it hit 90.159, the strongest since March 2006.