TOKYO, Oct 14 — The yen extended a third weekly decline against the dollar amid speculation the Federal Reserve will raise interest rates this year, rekindling divergence with Japan’s central bank.

Japan’s currency slid Today after China data beat economist forecasts, sapping demand for safety. The odds the Fed will raise interest rates by year-end have increased this month, pushing up Treasury yields. The Singapore dollar dropped to a seven-month low after a shrinking local economy spurred its central bank to say a "neutral policy stance” will be needed for an extended period.

"It’s more of a dollar-strengthening move,” said Chris Weston, chief market strategist at IG Ltd. in Melbourne. "For the yen to weaken further, the US yield curve needs to steepen further. That will prompt some capital outflows out of Japan to US Treasuries.”

The yen fell 0.3 per cent to 104.04 per dollar as of 7.04am in London, extending this week’s decline to 1 per cent. Japan’s currency was little changed at 114.74 per euro. The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, rose 0.2 per cent. It has gained 0.7 per cent this week.

Beating forecasts

Chinese consumer and producer prices both rose by more than economists had forecast in data released today, a day after the biggest decline in exports since February spurred a flight to safer assets. The consumer-price index rose 1.9 per cent in September from a year earlier, the National Bureau of Statistics said. Analysts surveyed by Bloomberg had forecast an increase of 1.6 per cent.

The yen headed for its longest weekly losing streak since May after Bank of Japan Governor Haruhiko Kuroda said Oct. 8 the central bank has no intention of reducing bond-buying. The BOJ still has room to increase monetary stimulus, he said, adding it may take a little longer to reach the central bank’s 2 per cent inflation target than the current forecast of some time in the 12 months through March 2018.

Fed odds

There’s a 66 per cent chance the US central bank will increase its benchmark rate by its December meeting, up from 59 per cent odds at the end of September, according to data compiled by Bloomberg based on fed fund futures. The calculations assume the central bank’s benchmark will average 0.625 per cent after the next increase.

"Right now investors worry mainly about whether a December hike means a faster pace in 2017,” Steven Englander, global head of Group-of-10 foreign-exchange strategy at Citigroup Inc. in New York, wrote in a research note. "To my mind, 65 to 70 per cent hiking probability is too high and we have vulnerability to any softening in data. A severe deterioration in Chinese economic and financial conditions would be a major risk negative.”

The Singapore dollar fell against all its 16 major peers, dropping 0.7 per cent to S$1.3906 (RM5.90) against the greenback. It reached S$1.3917, the weakest level since March 3. While the Monetary Authority of Singapore refrained from easing further, it said the economy wasn’t expected to pick up significantly in 2017.

The pound is heading for a sixth monthly decline on concern the government will pursue a so-called "hard Brexit” strategy that will see the country give up its membership of the European Union’s single market to secure greater control of immigration and lawmaking.

Sterling fell 0.5 per cent to US$1.2198, extending this week’s decline to 1.9 per cent. — Bloomberg