Dollar gains against yen on U.S. data, Fed expectations

By Sam Forgione

NEW YORK (Reuters) - The U.S. dollar rose against the yen on Tuesday on stronger-than-expected U.S. housing data and expectations for a hawkish Federal Reserve, but remained below a recent 10-month high in thin holiday trading.

The S&P CoreLogic Case-Shiller composite index of home prices in 20 metropolitan areas rose 0.6 percent in October from a revised 0.5 percent in September on a seasonally adjusted basis. This outpaced expectations of economists polled by Reuters for a 0.5 percent increase.

The data helped underscore expectations that the Fed would raise interest rates at a faster pace next year, a view that gained traction after the Fed on Dec. 14 projected three rate hikes next year, up from the two foreseen in September. The data also sent U.S. Treasury yields higher.

Trading was thin as markets in Britain, Australia, New Zealand, Canada and Hong Kong were closed for holidays.

"The prospect of Fed tightening next year is keeping bonds under pressure, yields up and the dollar bid, and obviously the Case-Shiller data is helping that," said Kathy Lien, managing director at BK Asset Management in New York.

The dollar extended its gains to a fresh session high against the yen of 117.60 yen , putting it up about 0.4 percent against the Japanese currency on the day, in the wake of data showing U.S. consumer confidence hit its highest in more than 15 years in December.

The dollar remained below a 10-month high of 118.66 yen touched Dec. 15 and a 14-year high against a basket of major currencies touched Dec. 20. The dollar index (DXY), which measures the greenback against a basket of six major rivals, was last up just 0.06 percent at 103.070, below the 14-year peak of 103.650.

Analysts said the dollar's uptrend looked intact, even as 120 yen and parity with the euro remained out of reach for the greenback on Tuesday.

"The dollar has been and is likely to continue to be supported by expectations that a new administration in Washington is going to be inflationary and thus, force the Fed to raise U.S. borrowing costs at a faster pace in 2017," Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, in a research note.

Sterling was last down 0.34 percent against the dollar at $1.2255, with analysts attributing the drop to concerns over next year's Brexit negotiations. The euro was last mostly flat against the greenback at $1.0457.