Team Investix
10 September, 2010
 

The dollar will fail to strengthen beyond 100 yen until next year as it will take time for the U.S. interest-rate advantage to widen enough to lure investors, according toCitigroup Inc.

Narrowing deficits have helped the U.S. currency begin a longer-term uptrend after it fell to a 14-year low in November, said Osamu Takashima, chief currency strategist at Citigroup in Tokyo. The dollar may be able to breach 100 yen once the interest-rate differential between the U.S. and Japan exceeds four percentage points, he said.

The dollar traded at 92.85 yen as of 11:30 a.m. in Tokyo, having climbed 9.4 percent from last year’s low of 84.83, which was the weakest since June 1995. The greenback last traded above 100 yen in April 2009.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the U.S. currency against those of six trading partners, was at 81.203. The gauge dropped to 70.698 in March 2008, the lowest since its inception in 1973.

Takashima said the dollar’s recovery was chiefly prompted by the narrowing of U.S. trade and current-account deficits since 2006. The current-account shortfall shrank to $97.7 billion in the second quarter of last year, after ballooning to a record $214.8 billion in the third quarter of 2006.