The dollar caught its breath on Thursday, after charging to a 13-1/2 year high against a basket of currencies on bets the Trump administration will adopt inflationary policies, while the yen sagged after a Bank of Japan bond-buying operation. The dollar index, which tracks the greenback against six major rival currencies, eased 0.1 percent to 100.32, after climbing as high as 100.57 on Wednesday, its loftiest peak since April 2003.
The yen retreated from its intraday highs after the Bank of Japan conducted its first special operation to curb rising yields on Japanese government bonds (JGBs). The BoJ later said it did not receive any bids for the fixed-rate JGB operation, which came after global bond yields spiked in the wake of Donald Trump's election as US president.
The dollar rose to as high as 109.30 yen after the BoJ operation was announced, pulling up from an intraday low of 108.55 yen. Later, the dollar was steady at 109.07 yen. On Wednesday, it reached a 5-1/2 month high of 109.76 yen. The BoJ's JGB operation came at a time when moves in US bond yields and US-Japan yield differentials have been a focal point for the dollar's moves versus the yen.
"Rises in US yields have been a significant factor behind the dollar's strength, but since that has started to calm down for now, moves in the dollar against yen have also settled down," said Shinichiro Kadota, a Tokyo-based FX strategist for Barclays. The US benchmark 10-year Treasury yield is now at 2.199 percent, after reaching a 10-month high of 2.302 percent earlier in the week.
Later on Thursday, investors will turn their focus to Federal Reserve Chair Janet Yellen's remarks before the congressional Joint Economic Committee, and anything she might say about the recent rise in the dollar and US bond yields. "A focus will be how she describes the latest moves in the market," a trader for a Japanese bank in Singapore said.
The euro inched up 0.1 percent to $1.0697, after slipping to as low as $1.06665 on Wednesday, its lowest level since early December last year. The euro could hit parity against the dollar next year, as Europe contends with political uncertainty and a weak economic recovery, Philip Saunders, Investec's co-head of multi-asset growth, told the Reuters Global Investment Outlook Summit on Wednesday.
The dollar remained underpinned by expectations that the Fed is on track to hike interest rates this year, and might have to take further action next year as well. Philadelphia Federal Reserve President Patrick Harker said on Wednesday he favoured raising interest rates and that the US central bank might have to hike more aggressively if the incoming Trump administration enacts a fiscal stimulus.
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