Dollar reaches five-month high against yen as US yields gets boost from inflation talk
TOKYO (JAPAN) – The dollar surged past low-yielding currencies on Wednesday, hitting a five-month high against the yen. This positive news for dollars came up, after US bond yields get a boost when it comes to the prospects of further economic recovery and a likely acceleration in inflation.
Bitcoin saw itself trading just below the $50,000 mark, a day ago was for the first time the cryptocurrency touched such a level for the first time, thereby bringing its total market capitalisation to more than $900 billion.
The dollar’s index against six other major currencies witnessed a jump back from a three-week low of 90.117 hit on Tuesday to last stand at 90.665.
Surge in US bond yields bolstered the dollar, with the 10-year yield rising to as high as 1.333% from around 1.20% at the end of last week.
Rodrigo Catril, senior FX strategist at National Australia Bank in Sydney, said, “The move up in yields has been driven by increasing inflationary concerns amid a rise in energy prices along with the prospect of a big US fiscal stimulus and the global recovery entering a more solid stage as vaccine roll out lead to the reopening of economies.:
The yen, which often has been sensitive to US yields, reacted the most with the dollar going as high as 106.225 yen, its highest since September, before retreating to 105.91 yen.
“I think the dollar’s downtrend is over. At the start of the year, speculators were betting on a fall in the dollar below 100 yen. They seem to have abandoned such a view now,” said Yukio Ishizuki, senior strategist at Daiwa Securities.
The overturn of one-week risks spread is now backing dollar calls for the first time in almost five years.
“If one thinks US yields will rise further, we could see more gains in the dollar,” said Jun Arachi, senior currency strategist at Rakuten Securities.
“I would say this trade could continue until Biden Administration’s stimulus package will come into effect, possibly in March, at which point people could start unwinding their bets to ‘sell-on-fact'”.
The euro slipped slightly to $1.2085 though its fall was less pronounced due to its gains earlier on Tuesday following strong German economic sentiment data.
The New York Federal Reserve’s Empire State manufacturing report released on Tuesday put forth an optimistic economic picture, with a rise in its “prices paid index” stoking fear of faster inflation.
That optimism was echoed by St. Louis Fed President James Bullard, who told CNBC that US financial conditions were “generally good,” and that inflation was likely to heat up this year.
San Francisco Fed President Mary Daly, however, said pressures on inflation are still on a downward curve, pushing against critics, who have cautioned against low interest rates and government spending could overheat the US economy and trigger high inflation.
Daiwa’s Ishizuki said, “Her comments are not resonating with market players preoccupied with inflation at this point.”
The positive mood on the economic outlook is underpinning risk-sensitive currencies.
The British pound held firm at $1.3895, its highest level since April 2018 on Tuesday.
The Australian dollar stood at $0.7750 , down slightly but still not far from Tuesday’s one-month high of $0.7805.
The offshore Chinese yuan took a step back slightly to 6.4359 per dollar after hitting a 2-1/2-year high of 6.4010 earlier in the week.