Dollar surges against yen as investors bet on Fed hike

London

THE US dollar extended gains against Japan's yen on Tuesday (Jan 4), hitting new 5-year highs as investors bet that the fast-spreading Omicron coronavirus variant would have limited economic impact and that the Federal Reserve would hike rates.

In the second trading day of 2022, global markets extended the upbeat moves seen on Monday.

The dollar's gains were helped by a rise in US Treasury yields, with the US 10-year yield hitting a 6-week high.

At 1158 GMT, the dollar index was up 0.2 per cent at 96.398, its highest in 13 days.

Versus the yen, the dollar was up 0.7 per cent at 116.125, extending its overnight gains to reach its highest since January 2017. But it was only the biggest daily gain for the dollar versus the yen since November 2021. The euro was down 0.2 per cent versus the dollar, at US$1.1276.

Investors see Omicron as potentially less disruptive to the global economy than previous variants, following studies suggesting that the risk of hospitalisation is lower.

Money markets have fully priced in a first US rate increase by May, and 2 more by the end of 2022.

Asia's factory activity grew in December as companies withstood rising global cases of the Omicron variant, though persistent supply constraints and rising input costs clouded the outlook for some economies.

Risk-sensitive currencies were generally up on the day. The Australian dollar, which is seen as a liquid proxy for risk appetite, was up 0.1 per cent at US$0.71975, even as hospitalisation in the state of New South Wales surpassed the record levels seen during the Delta variant outbreak.

The New Zealand dollar was down 0.2 per cent.

Britain's pound was up 0.1 per cent at US$1.349, while euro-sterling edged down to its lowest since February 2020, 83.57 pence per euro, shortly before midday.

British Prime Minister Boris Johnson said on Monday that the country would "continue with the path that we are on" in terms of measures to limit the Covid-19 spread.

Bitcoin was up 0.5 per cent on the day at US$46,651.17, still significantly below its latest all-time high of US$69,000 reached in November. REUTERS