US dollar hits one-month high against yen as traders bet on Fed rate hike

THE US dollar climbed to a one-month high against Japan’s yen on Monday (Apr 17) as traders eyed up another interest-rate hike from the Federal Reserve, while the Bank of Japan stuck to its easy-money policies for now.

The greenback rose to 134.22 yen earlier in the session, the highest level since Mar 15. It was last up 0.19 per cent at 134 yen.

Meanwhile, the US dollar index – which measures the currency against six major peers – was little changed at 101.66. It touched a one-year low of 100.78 on Friday before rebounding somewhat.

“The US dollar has bounced back, but also we’ve had comments from the Bank of Japan indicating that there is no real reason for them to pull back from their ultra-easy policy,” said Jane Foley, head of FX strategy at Rabobank.

Expectations that interest rates will rise relative to global peers tend to boost a country’s currency by making investments there look more attractive, and vice versa.

Last week, the new Bank of Japan governor Kazuo Ueda made clear that the country would remain a “dovish” outlier by keeping interest rates at ultra-low levels for the time being.

Meanwhile, pricing in derivatives markets showed that traders think there is a roughly 86 per cent chance the Fed will hike rates again by 25 basis points in May, up from around 69 per cent last week .

That increase came after past US retail sales figures were revised upwards, a Fed official said rate hikes were yet to have the desired effect, and consumer inflation expectations rose on Friday.

The euro was roughly flat against the US dollar on Monday at US$1.098.

It hit a one-year high of US$1.108 on Friday, with traders expecting further interest-rate hikes from the European Central Bank even as the Fed nears a pause.

Sterling slipped 0.07 per cent to US$1.241, after hitting a 10-month high of US$1.255 on Friday.

Beat Nussbaumer, a currency trader and portfolio manager, said he thought the market was set for a dull patch, bar any major crisis.

“I think the US dollar will weaken over the next many, many weeks, but the story is so marginal that it will be a slow burner,” he said.

“There’s a bit of a vacuum out there right now. It’s going to be data to data.”

Rabobank’s Foley said investors would monitor comments from the Fed, with Austan Goolsbee, Christopher Waller, and Loretta Mester among the US officials due to speak this week.

Foley expects one more 25 basis point rate hike from the Fed in May before it holds rates steady for the rest of the year.

Investors will also keep an eye on bank earnings, with Bank of America and Goldman Sachs due to report on Tuesday. REUTERS