Dollar Hits Fresh Highs Against Euro, Yen

Traders say Greenback Being Bought Ahead of Next Week’s FOMC meeting

By HIROYUKI KACHI

Updated March 10, 2015 3:14 a.m. ET

The Wall Street Journal

The dollar set fresh multiyear highs against the euro and the yen in Asian trade Tuesday, as market participants bet on the continuing divergence in monetary and economic conditions in the U.S., the eurozone and Japan.

The common currency fell to $1.0785—its lowest since Sept. 3, 2003—in midday trading before stabilizing at $1.0796 midway through afternoon trading.

Against the yen, the greenback extended its gains, at one point hitting ¥122.04, its highest since July 20, 2007.

Market participants said that brisk U.S. jobs data released Friday helped increase hopes that the Federal Reserve would drop its reference to being patient before raising rates from its statement at the Federal Open Market Committee next week. Such a move would heighten hopes of the central bank raising interest rates around midyear.

“It looks like investors are buying the dollar in advance of the FOMC meeting,” said Mizuho Securities FX strategist Kenji Yoshii. While there were no specific buying incentives Tuesday, the dollar gained traction as options-related stop-loss buying orders kicked in, he added.

In contrast with speculation over the future direction U.S. monetary authorities will take, the European Central Bank kicked off its asset purchasing program earlier this week. In Japan, concerns that declining oil prices might damp inflation expectations prompted the Bank of Japan to take extra stimulus steps in late October.

Market participants said that expectations for an upswing in Japan’s Nikkei Stock Average, combined with comments by Dallas Federal Reserve President Richard Fisher , helped give the dollar some early impetus with some investors having taken speculative dollar-buying positions to drive the pair up.

Mr. Fisher said Monday that “if we are serious about limiting full-employment overshoot, I posit that prompt action to scale back policy accommodation is likely to prove imperative.”

The veteran policy maker, who retires from the Dallas Fed on March 19, has long argued that the time to push interest rates above the nearly zero levels they have occupied since the end of 2008 is very near. Mr. Fisher won't attend the FOMC meeting scheduled for March 17-18.

After rising in the morning, the Nikkei ended the day off 0.7% at 18665.11, disappointing some investors who were expecting the index to break above the 19000-mark following advances in U.S. stocks overnight.

“Resistance at the 19000 level has been capping strong market advances,” said Tatsunori Kawai, chief strategist at kabu.com Securities . Meanwhile, the approach of monthly Nikkei options and quarterly futures contracts on Friday may also be contributing to the profit-taking mood, he added.

Going forward, analysts say that the pace of the dollar’s gains against the yen will be “relatively slow” due in part to moves by Japanese firms and investors to repatriate profits.

“The dollar is broadly strong, but the yen isn’t necessarily that weak,” Junya Tanase, chief currency strategist at J.P. Morgan Chase in Tokyo said. “The pair may gain traction once yen buying ahead of the annual book closing at end-March runs its course.”

— Tatsuo Ito and Bradford Frischkorn contributed to this article.

Write to Hiroyuki Kachi at hiroyuki.kachi@wsj.com