By Alun John and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK (Reuters) – The dollar rose to a one-week high against the rate-sensitive Japanese yen in choppy trading on Monday, on market expectations that the Federal Reserve will keep monetary policy tight for longer, sending U.S. Treasury yields at the short end of the curve higher.
Those expectations will be challenged or reinforced by the week’s main event – the release of U.S. consumer price data on Tuesday – which loomed over Monday’s trading.
“For the Fed, it doesn’t seem that rate hikes are over yet. (Fed Chair Jerome) Powell hinted of a higher peak rate last week if the jobs market continues to be hot,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull in Toronto.
“I found the Fed speak last week to be hammering home higher rates for longer. That’s why the U.S. dollar has had momentum over the last week and a half,” he added.
The dollar rose to as high as 132.86 yen, nearing last week’s 132.9, the highest since Jan 6.. It was last down nearly 1% at 132.66 yen.
The greenback tracked the rise in U.S. Treasury two-year yields, which were last 3.2 basis points (bps) higher at 4.544%, after hitting their highest since late November.
The euro hit a one-month low of $1.0656 in Asia trading, but was last at $1.0706, up 0.3%. The British pound rose 0.5% to $1.2123. Last week, sterling hit a one-month low of $1.1961.
That left the dollar index, which tracks the greenback against six other major currencies, at 103.44, slightly down on the day.
Higher U.S. yields were a major driver of the softer yen. The benchmark 10-year U.S. treasury yield on Monday hit a fresh six-week high of 3.755% and the two-year yield hit its highest since late November at 4.56%.
The Japanese currency dropped sharply last year, reaching a 32-year low of 151.94 per dollar as U.S. rates rose while Japanese rates stayed pinned near zero.
It has regained ground this year as U.S. rates looked like they were near their peak, also rising 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.
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, Tuesday’s U.S. CPI report will be a pivotal data release.
“Tomorrow, with CPI, could be a potential inflection point,” said Silver Gold Bull’s Bregar. “It doesn’t surprise me that the estimates are higher vis-a-vis the previous month because of all the strong data we have had of late.”
Money markets are positioned for a peak in U.S. interest rates of 5.2% around July, compared with the current target rate of 4.5-4.75%, 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 0.92 Swiss francs and was last down 0.4% at 0.9204 francs.
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Currency bid prices at 10:28AM (1528 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 103.3700 103.6000 -0.20% -0.116% +103.8400 +103.3500
Euro/Dollar $1.0714 $1.0678 +0.35% +0.00% +$1.0718 +$1.0656
Dollar/Yen 132.5950 131.4150 +0.89% +1.13% +132.8600 +131.1100
Euro/Yen 142.07 140.27 +1.28% +1.26% +142.1000 +140.3200
Dollar/Swiss 0.9208 0.9237 -0.31% -0.41% +0.9259 +0.9200
Sterling/Dollar $1.2129 $1.2059 +0.59% +0.30% +$1.2133 +$1.2031
Dollar/Canadian 1.3337 1.3346 -0.07% -1.57% +1.3379 +1.3325
Aussie/Dollar $0.6957 $0.6919 +0.56% +2.06% +$0.6959 +$0.6891
Euro/Swiss 0.9864 0.9861 +0.03% -0.31% +0.9877 +0.9847
Euro/Sterling 0.8831 0.8852 -0.24% -0.15% +0.8876 +0.8824
NZ $0.6357 $0.6311 +0.76% +0.15% +$0.6359 +$0.6291
Dollar/Dollar
Dollar/Norway 10.1090 10.1565 -0.23% +3.26% +10.1800 +10.1300
Euro/Norway 10.8341 10.8351 -0.01% +3.24% +10.8680 +10.8113
Dollar/Sweden 10.4005 10.4524 -0.17% -0.07% +10.4913 +10.4018
Euro/Sweden 11.1445 11.1631 -0.17% -0.05% +11.1860 +11.1370
(Reporting by Alun John in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Kevin Buckland in Tokyo; Editing by Shri Navaratnam, Simon Cameron-Moore and Hugh Lawson)