NEW YORK: The dollar rose to six-week highs against the rate-sensitive Japanese yen in choppy trading on Monday, on expectations the Federal Reserve will keep monetary policy tight for longer, sending short-term US Treasury yields higher.
The US currency, however, fell against most currencies as investors pared back long dollar positions after a strong rally last week.
Expectations for US rates to remain higher for longer will be challenged or reinforced by the week’s main event - the release of US 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 of 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 US dollar has had momentum over the last week and a half.”
The dollar rose to 132.91 yen, the highest since Jan 6.. It was last up nearly 1% at 132.69 yen.
The greenback tracked the rise in the US Treasury two-year yield, which was last up three basis points (bps) at 4.542%, after hitting its highest since late November.
“The market doesn’t want to be short dollar/yen ahead of CPI tomorrow,” said Marc Chandler, chief market strategist at Bannockburn Forex in New York.
The euro hit a one-month low of $1.0656 in Asia trading, but was last at $1.0718, up 0.4%. The British pound rose 0.6% to $1.2133, after hitting a one-month low of $1.1961 last week.
That left the dollar index, which tracks the greenback against six major currencies, at 103.35, down 0.2%.
“We have a nice pullback in the US dollar after a strong rally last week,” said Bannockburn’s Chandler.
“I don’t think we have taken out key levels just yet. But we’re consolidating some positions after last week’s moves and ahead of tomorrow’s CPI.”
Higher US yields were a major driver of the softer yen. The benchmark 10-year US 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 to a 32-year low of 151.94 per dollar as US rates rose, while Japanese rates stayed near zero.
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