The dollar rose to a one-month high against the yen on Wednesday, boosted by a rise in Treasury yields to multi-year highs overnight as traders await U.S. inflation data this week for clues on the pace of Fed policy tightening.
The euro has continued to fall from a three-month high against the Japanese yen after European Central Bank President Christine Lagarde lowered expectations of aggressive interest rate hikes earlier this week.
A more hawkish tone from both the ECB and the Fed last week caught markets off guard, sending yields on the eurozone and U.S. debt skyrocketing in anticipation of rates rising faster and higher than previously anticipated. The dollar rose to 115.69 yen at one point in early Asian trading, the highest since Jan. 10, before falling back to 115.43 at the close.
For the first time since November 2019, the 10-year Treasury yield reached 1.97 percent on Tuesday.
For the first time since February 2020, the yield on the two-year note, which is more sensitive to interest rate expectations, reached 1.347.
According to CME’s FedWatch Tool, markets are pricing in a more than 70% chance of a 25 basis point hike and a nearly 30% chance of a 50 basis point hike when U.S. policymakers meet in March.
High inflation in the United States may rise even further before improving. Westpac strategists wrote that the dollar index is in a holding pattern. At the same time, markets weigh the prospect of an abrupt Fed policy tightening against the ECB’s hawkish backflip.
The dollar index, which compares the greenback to six major currencies, rose 0.02 percent to 95.614 after bouncing off a two-and-a-half-week low of 95.136 on Friday. It reached a high of 97.441 at the end of last month, the highest since June 2020.
Euro/Dollar – 1.1420 1.1417 +0.03% +0.45% +1.1423 +1.1412
Dollar/Yen – 115.4300 115.6100 -0.08% +0.44% +115.6250 +115.5200
Euro/Yen – 131.84 131.91 -0.05% +1.17% +132.0300 +131.7700
Dollar/Swiss – 0.9251 0.9252 -0.01% +1.41% +0.9254 +0.9250
Sterling/Dollar – 1.3552 1.3547 +0.03% +0.20% +1.3553 +1.3543
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