US dollar picks up on interest rate hike speculation

[TOKYO] The dollar rose against the yen Tuesday as investors buy the unit on hopes that the Federal Reserve will raise US interest rates this year.

In Tokyo trading, the greenback was sitting at a five-week high of 124.38 yen, against 124.30 yen in New York on Monday.

The euro bought US$1.0825 and 134.61 yen, slightly up from US$1.0824 and 134.55 yen in US trading.

Markets are keeping a close eye on the Fed as it weighs when to hike interest rates from their record lows as the US economy gets back up to speed.

Last week Fed chief Janet Yellen said she saw a rise taking place before 2016 - a rate hike is a plus for the dollar.

Meanwhile, the Bank of Japan and European Central Bank are spending hundreds of billions of dollars on bonds and other assets to support their respective economies, pushing down the value of the yen and euro.

"The dollar-buying trend became clearer" after Yellen's comments, said Keisuke Hino, a foreign-exchange trader at Mizuho bank.

The yen was under pressure after minutes from the Bank of Japan's policy board meeting last month showed some members expect the nation's recovery to slow temporarily in the second quarter.

Last week, Japan's central bank cut its economic growth and inflation forecasts, as analysts warned over a disappointing second quarter that underscores the wobbly success of Prime Minister Shinzo Abe's policies to revive the economy.

Investors were also eyeing the situation in Greece where the government hiked taxes and paid billions of euros to its creditors on Monday, as banks reopened just days after the debt-laden country reached a bailout deal with its creditors.

BLOOMBERG