U.S. dollar surges to new 24-year high versus yen; sterling rallies

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By Alun John and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK (Reuters) - The dollar climbed to a fresh 24-year peak versus the yen on Wednesday, holding above levels that prompted intervention by Japanese officials last month, while sterling rose after a sharp fall in the previous session as investors pondered the Bank of England's next steps.

The pound gained following a drop to a two-week low versus the dollar and euro late on Tuesday, after the Financial Times reported that the BoE has signalled privately to lenders that it is prepared to prolong its bond purchases.

Additional media reports suggested the UK government could make a U-turn on more elements of its recent "minibudget" that roiled markets.

Data showing U.S. producer prices increased more than expected in September, further boosted the dollar against the yen. The producer price index for final demand rebounded 0.4%, above the forecast for a 0.2% rise. In the 12 months through September, the PPI increased 8.5% after advancing 8.7% in August.

Following the U.S. PPI data, the greenback rose as high as 146.88 yen, its strongest level since August 1998. It was last up 0.7% at 146.84, marking a fifth straight session of gains.

Japanese authorities staged their first yen-buying intervention since 1998 on Sept. 22, when the dollar was at 145.90 yen.

"This just reaffirmed that the BoJ (Bank of Japan) did not defend a particular level, but was addressing volatility," said Marc Chandler, chief market strategist, at Bannockburn Global Forex in New York, adding that three-month yen volatility was lower on Wednesday than when Japan intervened last month.

Three-month implied volatility on the yen was at 11.9% , compared with a high of 13.26% on Sept. 22 when Japan stepped in to prop up the Japanese unit.

"Not intervening at the old level was tactically smart. It's like not waving a red flag in front of the market. There could be another bout of intervention, but it would have less effect than the first bout," he added.

Officials have reiterated they stand ready to take appropriate steps to counter excessive currency moves, though whether they wish to defend particular levels is less clear.

The yen is particularly sensitive to the gap between U.S. and Japanese long-term government bond yields. The benchmark 10-year Treasury yield is trading not far from 14-year highs just above 4%, while the equivalent Japanese yield is pinned near zero.

Yields outside Japan have been pushed higher by spillover from the turmoil in Britain's bond market.

Long-dated gilt yields jumped again, with the 20-year hitting a 14-year high a day after BoE Governor Andrew Bailey reiterated late on Tuesday that the central bank would end its emergency bond-buying programme on Friday, telling pension fund managers to finish rebalancing their positions by then.

Sterling fell to a two week low of $1.0925 after Bailey's remarks, which were reiterated by a central bank spokesperson on Wednesday. The currency later rebounded to stand 0.8% higher at $1.1044, after the FT report that the BoE had suggested to private lenders that it was open to extending its bond purchases.

Against the euro, the pound gained. In late morning trading, the euro was down 0.9% at 87.71 pence.

"What this reflects is that the Bank of England and other officials as well like to talk to private groups," said Bannockburn's Chandler. "These comments should be made public. By talking to private people, they give them information that they don't give to the public."

Data earlier in the session showed Britain's economy shrank by 0.3% in August, hit by weakness in manufacturing and maintenance work in North Sea oil and gas fields.

Elsewhere, the euro remained under pressure, down 0.2% at $0.9686.

The risk-sensitive Australian dollar sank to a 2 1/2-year low of US$0.6236, and was last flat on the day at US$0.6268.

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Currency bid prices at 10:41AM (1441 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 113.4700 113.3400 +0.13% 18.614% +113.5900 +113.0200

Euro/Dollar $0.9676 $0.9706 -0.30% -14.88% +$0.9735 +$0.9676

Dollar/Yen 146.8400 145.8650 +0.66% +27.55% +146.9150 +145.6000

Euro/Yen 142.09 141.58 +0.36% +9.03% +142.5300 +141.4500

Dollar/Swiss 0.9987 0.9959 +0.30% +9.51% +0.9989 +0.9932

Sterling/Dollar $1.1047 $1.0961 +0.87% -18.25% +$1.1097 +$1.0925

Dollar/Canadian 1.3790 1.3795 -0.02% +9.08% +1.3830 +1.3762

Aussie/Dollar $0.6266 $0.6273 -0.08% -13.77% +$0.6288 +$0.6236

Euro/Swiss 0.9662 0.9677 -0.16% -6.82% +0.9690 +0.9644

Euro/Sterling 0.8757 0.8847 -1.02% +4.25% +0.8867 +0.8754

NZ $0.5604 $0.5582 +0.46% -18.07% +$0.5616 +$0.5561

Dollar/Dollar

Dollar/Norway 10.7795 10.7445 +0.27% +22.29% +10.7860 +10.6415

Euro/Norway 10.4284 10.4347 -0.06% +4.21% +10.4696 +10.3665

Dollar/Sweden 11.3624 11.3577 -0.24% +26.00% +11.3961 +11.3051

Euro/Sweden 10.9942 11.0203 -0.24% +7.43% +11.0385 +10.9933