By Tom Westbrook
SINGAPORE (Reuters) – The yen fell through the psychological 120 level for the first time since 2016 on Tuesday, after a hawkish speech from Federal Reserve Chair Jerome Powell raised bets on higher U.S. interest rates and widened the policy gap on a dovish Bank of Japan.
The yen fell about 0.4% to briefly hit 120.08 per dollar in early Asia trade. It is down about 4% this month as leaping U.S. yields have lured flows from Japan.
“Widening policy divergence is continuing to push the yen to more deeply undervalued levels against the U.S. dollar,” MUFG currency analyst Lee Hardman said.
The dollar was broadly stronger elsewhere and pushed the euro down 0.2% to $1.0992.
U.S. bonds and interest-rate futures took a further flogging overnight after Powell said policymakers needed to move “expeditiously” and put the possibility of 50-basis point (bp) rate hikes on the table.
Fed funds futures moved to price in an almost 2/3 chance of a 50 bp hike in May and now anticipate the benchmark rate – currently below 0.5% – exceeding 2.5% in 2023.
Benchmark 10-year yields rose 14 bps and, at 2.0914%, the gap on anchored 10-year Japanese yields is the widest in more than 2-1/2 years. [US/][JP/]
The moves lent broad strength to the dollar elsewhere, as have nerves about the intensifying war in Ukraine which is lifting oil prices back toward early-month highs. [O/R]
The Australian dollar was also softer at $0.7386, as was the kiwi at $0.6873.
The U.S. dollar index rose 0.2% to 98.700. Sterling eased 0.2% to $1.3144.
In offshore trade, the Chinese yuan was at 6.3739 to the dollar, having pulled back from recent highs and settled in a new range as investors await promised monetary easing. [CNY/]
Although the Chinese central bank left 1-year and 5-year loan prime rates unchanged … on Monday, we still expect the (People’s Bank of China) to lower the reserve ratio requirement by 50 bp again, as early as Q1 2022,” Scotiabank strategist Qi Gao said. “We maintain our short USD/CNH spot position.”
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Currency bid prices at 0106 GMT
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Euro/Dollar
$1.0992 $1.1016 -0.21% +0.00% +1.1026 +1.0981
Dollar/Yen
119.8800 119.4850 +0.32% +0.00% +120.0350 +119.4600
Euro/Yen
131.78 131.59 +0.14% +0.00% +131.9300 +131.6200
Dollar/Swiss
0.9354 0.9337 +0.27% +0.00% +0.9362 +0.9335
Sterling/Dollar
1.3143 1.3169 -0.18% +0.00% +1.3172 +1.3133
Dollar/Canadian
1.2600 1.2597 +0.02% +0.00% +1.2603 +1.2589
Aussie/Dollar
0.7387 0.7400 -0.18% +0.00% +0.7402 +0.7377
NZ
Dollar/Dollar 0.6873 0.6886 -0.17% +0.00% +0.6886 +0.6864
All spots
Tokyo spots
Europe spots
Volatilities
Tokyo Forex market info from BOJ
(Reporting by Tom Westbrook; Editing by Himani Sarkar)