US dollar jumps to almost 3-year high vs yen

London

THE US dollar soared to its highest in nearly three years versus the Japanese yen on Monday as investors remained confident the US Federal Reserve will announce a tapering of its massive bond-buying next month despite softer US payrolls figures.

Friday's jobs data pushed US bond yields higher. The yen, which is known for being particularly sensitive to interest rate differentials, hit 113 yen per US dollar for the first time since December 2018 in morning London trade.

The Japanese currency was also hurt by a slight tilt towards riskier currencies as sterling and the Australian dollar both gained slightly on the greenback, leaving the US dollar's index only a touch higher at 94.228, but not far from a one-year high of 94.504 touched earlier this month.

"Since the beginning of the summer, dollar-yen has moved in tandem with US and Japan rate spreads," said Roberto Cobo Garcia, head of FX strategy at BBVA. "The upside pressures in the US curve have pushed the pair to levels not seen since 2018 and not even the correction seen in global equities has prevented the pair from edging higher."

With Japanese government bond rates well anchored and the Bank of Japan keeping policy on ice, expectations of a Fed tapering announcement soon should press US Treasury yields higher, favouring higher US dollar-yen ranges, Garcia said, adding he expects a tapering announcement from the Fed in November.

The yen has also been weighed down by the continued crude oil rally, given Japan is a net oil importer, said Joel Kruger, currency strategist at LMAX, adding the currency was also hobbled by monetary policy divergence between the BOJ and its peers, driving a widening yield differential.

The Australian dollar firmed a little, edging nearer to its highest in a month, helped by strong commodities prices and a partial reopening of Sydney, Australia's largest city.

The British pound held firmer at US$1.3624, extending its recovery from a nine-month low set late last month, on growing expectations the Bank of England could raise interest rates to curb inflation.

The Canadian dollar changed hands at C$1.2456 per US dollar, having hit a two-month high of C$1.24465 thanks to surprisingly strong Canadian payrolls data and lofty oil prices.

Meanwhile, the euro was softer at US$1.1575, hovering a tad above Wednesday's low of US$1.1529, its weakest since July last year. REUTERS