(Bloomberg) — The dollar strengthened to a 12-year high against the yen as growing speculation the U.S. will raise interest rates widened the policy divergence with Japan. European stocks fell with U.S. equity-index futures, and Chinese shares slid the most in four months.
The dollar gained 0.4 percent to 124.20 yen at 8:34 a.m. in New York. The Stoxx Europe 600 Index declined 0.4 percent and Standard & Poor's 500 Index futures slipped 0.2 percent. The Shanghai Composite Index tumbled 6.5 percent as brokerages tightened margin lending.
The yield on 10-year German bunds dropped three basis points to 0.52 percent. The pound declined and gilts rose after first-quarter U.K. economic growth missed analyst predictions for an upward revision.
The dollar has gained after Federal Reserve Chair Janet Yellen said last week she expects to raise borrowing costs this year if the economy meets her forecasts. U.S. jobless claims held below 300,000 for the 12th straight week after data on May 22 showed core inflation rose more than expected. Bank of Japan Governor Haruhiko Kuroda reiterated this week that he'll adjust monetary policy if needed to meet his inflation targets.
"We've had pretty consistent upside surprises in U.S. data and the most important one was the U.S. core inflation reading which surprised significantly to the upside," said Alvin T. Tan, a foreign-exchange strategist at Societe Generale SA in London. "It triggered dollar-buying because expectations for the Fed were pushed somewhat higher."
Dollar climbs
The Bloomberg Dollar Spot Index rose 0.2 percent, paring some earlier gains. The dollar reached 124.39 yen, the most since December 2002. The pound dropped 0.5 percent to $1.5283 and the euro was little changed at $1.0903.
Jobless claims increased by 7,000 to 282,000 in the week ended May 23, a Labor Department report showed. The median forecast of 51 economists surveyed by Bloomberg called for 270,000. Readings this low typically coincide with healthy levels of hiring.
The Australian dollar weakened against all of its 16 major counterparts, sliding 0.7 percent to 76.74 U.S. cents, reaching a six-week low. The government said capital investments fell last quarter by twice as much as economists had estimated.
Austrian bonds rose with their German peers, sending the 10-year yield three basis points lower to 0.65 percent. The rate on gilts fell five basis points to 1.83 percent and Germany's bund yields slid three basis points to 0.52 percent.
Spain's 10-year bond yield rose two basis points to 1.83 percent and Portugal's increased four basis points to 2.52 percent.
IMF deadline
French and German delegates at a meeting of Group of Seven finance chiefs in Dresden pushed back against Greek claims that an agreement over bailout funds is near, as the deadline approaches for International Monetary Fund payments next month.
"We can expect sentiment to swing back and forth until we really get to crunch time on Greece, and I don't think we'll get a deal until the very last day," Allan von Mehren, chief analyst at Danske Bank A/S, said by phone from Copenhagen. "Markets will be quite volatile as everyone tries to read the signals."
