Yen slides as Powell sees possibility of 50 bps rate hike

London

THE US dollar rose on Tuesday (Mar 22) as Federal Reserve Chair Jerome Powell put the possibility of half-percentage-point interest rate hikes on the table, while the yen fell through the psychological 120 level as the Bank of Japan (BOJ) reiterated its support for ultra-loose monetary policy.

The yen hit a 6-year low, down 1.1 per cent to 120.81 at 1230 GMT, having lost around 5 per cent against the dollar this month, as leaping US yields and a deteriorating trade balance suck cash from the world's third-biggest economy.

Yen crosses also suffered, with the euro making a 5-month high of 133.30. The Japanese currency slumped to an almost 7-year low against the Swiss franc.

Japan must maintain ultra-loose monetary policy lest inflation hurt the economy, BOJ governor Haruhiko Kuroda said on Tuesday - contrasting with hawkish overnight comments from Powell.

The Fed chief sent US yields to multi-year highs by putting the possibility of the half-percentage-point rate hikes on the table.

Two-year, 5-year, 10-year and 30-year Treasury yields all stood at their highest levels since 2019 on Tuesday, widening the gap on Japanese yields, while lending the dollar broad support elsewhere.

The euro, hit by the Ukraine war and rising oil prices, fell below US$1.10 in early London trading, but had recovered a bit to trade up 0.1 per cent at US$1.1032.

European Central Bank (ECB) President Christine Lagarde and chief economist Philip Lane are expected to give speeches later in the day. Francois Villeroy de Galhau, an ECB policymaker, said on Tuesday the central bank needs to look through short-term swings in energy prices and keep its focus squarely on underlying inflation trends.

ECB Vice-President Luis de Guindos said Russia's war in Ukraine will dent euro zone growth, but the block is still set to expand.

British sterling rose to an almost 3-week high versus the dollar and to a 2-week high against the euro ahead of British finance minister Rishi Sunak's budget update to parliament on Wednesday.

Against a basket of currencies, the US dollar index flattened at 98.452.

Bitcoin jumped to a 3-week high, last up 4.2 per cent to US$42,902. REUTERS