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(Bloomberg) — The dollar touched a two-week high versus major peers ahead of minutes from last month’s Federal Reserve meeting, after American housing data reinforced speculation monetary policy will diverge between the U.S. and Europe.
The greenback held a two-day gain against the euro after European Central Bank executive board member Benoit Coeure said the ECB intends to increase purchases of euro-area bonds before liquidity drops this summer. ECB Governing Council member Christian Noyer said separately on the same day the central bank is ready to extend quantitative easing if needed. Their comments calmed European bond markets, sending German yields tumbling.

“The dollar is getting a boost from widening yield differences between the U.S. and Germany,” said Daisuke Uno, the Tokyo-based chief strategist at Sumitomo Mitsui Banking Corp. “U.S. data were strong while the ECB officials’ comments pushed German yields lower, sparking euro selling and dollar buying. Dollar buying momentum is spreading against the yen.”
The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 major trading partners, was little changed at 1,170.78 as of 12:11 p.m. in Tokyo, after touching 1,172.27, the highest level since May 5. It completed a 1.8 percent, two-day jump on Tuesday, the biggest such gain since December 2011.

Germany’s 10-year bond yield tumbled to 0.6 percent on Tuesday, widening the spread with 10-year U.S. Treasury yield by about 10 basis points to 169 points.

Increased QE

The dollar was little changed $1.1145 per euro, after climbing 2.7 percent over the past two days. The common currency tumbled 1.5 percent versus the dollar on Tuesday, the most in two months, as Coeure said the ECB will increase purchases under its quantitative-easing program from 60 billion euros ($67 billion) in May and June.
T

he greenback was 0.2 percent stronger at 120.91 yen after reaching a two-month high of 120.98. It’s set for a fifth day of gains, which would be the longest rising streak since December 2014.

New home construction in the U.S. jumped in April to the most since November 2007, up 20 percent from March, figures from the Commerce Department showed Tuesday in Washington.

Japan’s gross domestic product grew at an annualized 2.4 percent in the three months through March from the previous quarter, betting the median estimate of 28 economists surveyed by Bloomberg which was a gain of 1.6 percent.
The Bank of Japan holds a two-day policy meeting from Thursday. Economists from Goldman Sachs Group Inc. to Credit Agricole SA. delayed their calls on an expansion in the central bank’s monetary stimulus, though the largest number still see a boost by the end of October, a survey by Bloomberg shows.

Fed Minutes

The Fed releases minutes of its April 28-29 meeting Wednesday as it debates the timing of higher interest rates. The central bank has said a slowdown in first-quarter economic growth was probably temporary.
“While we’ll be looking for whether the Fed still believes economic weakness is temporary or sees a bigger downside risk, the minutes won’t crystallize its economic assessment,” said Yujiro Goto, a currency strategist at Nomura Holdings Inc. in London. “Since the Fed is data dependent, seeing more good economic reports is overwhelmingly important.”

–With assistance from Mika Otsuka in New York and Yumi Ikeda in Tokyo.

To contact the reporter on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Jonathan Annells, Naoto Hosoda