fbpx

FOLLOWING THE RELEASE OF INFLATION DATA, THE DOLLAR HAS GAINED GROUND ON BETS OF INCREASED MONETARY TIGHTENING

Harvest Global Markets :

On Monday, the yen fell to its lowest level versus the dollar in 24 years, as the yield spread between Japanese and US benchmarks widened after strong US inflation data pushed Treasury yields higher. As the policy gap between hawkish central banks overseas and the dovish Bank of Japan (BOJ) becomes increasingly obvious, the dollar surged to 135.22 yen; it’s highest since October 1998, having gained for each of the previous seven sessions. This week’s focus will be on central banks’ efforts to reduce inflation by raising interest rates. At their meetings, the Federal Reserve and the Bank of England are likely to hike rates, and the Swiss National Bank may follow suit.

The BOJ, on the other hand, has indicated it will buy 500 billion yen ($3.70 billion) of Japanese government bonds on Tuesday as part of its strategy of keeping benchmark 10-year yields within 0.25 percentage points of its 0% target. The benchmark 10-year yield in the United States, on the other hand, hit 3.2 percent early Monday, up about 12 basis points from Friday. The two-year yield in the United States rose to 3.194 percent on Friday, the highest level since late 2007. U.S. inflation beat expectations on Friday driving bets that the Fed will have to raise rates even more aggressively. Market pricing indicates roughly a two-thirds chance of at least 125 basis points of increases across the Fed’s next two meetings on Tuesday and Wednesday this week

Monday’s losses come after a brief yen bounce late Friday, when Japan’s government and central bank expressed alarm about the currency’s recent severe dips in a rare joint statement considered as the strongest warning to date that authorities may act to protect the currency. Expectations of a more hawkish Fed are sending the dollar higher versus a variety of currencies. The dollar index, which compares the greenback to six other currencies, rose 0.3 percent to 104.58, its highest level in four weeks. The euro was trading at $1.0490, down 0.23 percent, and sterling was trading at $1.2287, down 0.23 percent, with little help from predictions that the Bank of England will hike rates on Thursday, the sixth time since December.

The Swiss National Bank meets on Thursday as well, and a 25-basis-point hike is expected. The risk-friendly Australian dollar fell as much as 0.6 percent to $0.6998, a three-and-a-half-week low, as investors fled to perceived safer assets due to concerns about the impact of increased rates. Similarly, Bitcoin, a so-called risk asset, fell to a fresh 18-month low of $24,888 when crypto currency lending firm Celsius Network announced it would halt withdrawals and transfers between accounts owing to “extreme market conditions.”

Share this post