Dollar gains on yen as US yields rise ahead of key CPI data

LONDON, Feb 13 —The dollar was testing a five-week high versus major peers today, particularly gaining against the rate-sensitive Japanese yen, as investors’ bets that the Federal Reserve will keep monetary policy tight for longer sent US yields higher.

Those expectations will be challenged or underscored by the week’s main event – the release of US consumer price data on Tuesday – which loomed over Monday trading.

The dollar rose as much as 1 per cent to ¥132.76 (RM4.4) , nearing last week’s ¥132.9, the highest for the dollar against the yen since Jan 6.

The euro hit a one-month low of US$1.0656 (RM4.66) in Asia trading, but was last at US$1.0693, up 0.15 per cent. The British pound rose 0.3 per cent to US$1.2096, staying not far from a one-month low of US$1.1961 hit last week.

That left the dollar index, which tracks the US currency against six major peers, at 103.55, steady on the day having earlier neared last week’s one-month top of 103.9.

Higher US yields were a major driver of the softer yen. The benchmark 10-year US treasury yield hit a fresh six-week high of 3.755 per cent and the two-year yield hit its highest since late November at 4.543 per cent.

“That rising US yield pressure is likely behind the faltering yen rolling back lower, taking dollar/yen back above 132.00 after significant volatility last week when it emerged that the dovish Amamiya would not be the nominee to replace Kuroda at the helm of the BoJ on his exit in April,” said John Hardy, head of FX strategy at Saxo Bank.

The Japanese currency had dropped sharply last year, reaching a 32-year low of 151.94 per dollar as US rates rose while Japanese rates stayed pinned near zero.

It has regained ground this year as US rates looked like they were near their peak, and on expectations the Bank of Japan will move away from its ultra-loose stance, but both now look like they will come later than had been expected.

Sources said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.

“Markets are starting to understand that the new governor won’t be as hawkish as (investors) initially thought,” said Naka Matsuzawa, chief strategist at Nomura in Tokyo.

Meanwhile, in the United States, much stronger jobs data released at the start of February suggests the economy is performing strongly, meaning there is less danger for the Fed in keeping rates elevated.

As a result, “This week’s US CPI is one of the most pivotal prints in recent memory,” Barclays analysts said in a note.

“The dollar has rallied on the back of … US labour market strength but the evolving narrative is set to be updated yet again on Tuesday.”

Money markets are positioned for a peak in US interest rates of just below 5.2 per cent around July, compared with the current target rate of 4.5-4.75 per cent, but have mostly walked back expectations of major rate cuts later in the year.

Elsewhere, the Swiss franc strengthened after Swiss inflation data came in higher than expected. The dollar slid to as low as 0.9213 Swiss francs. — Reuters


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