NEW YORK, Jan 6 ― The dollar hovered near a five-year high to the yen today, supported by a surge in US Treasury yields on rising bets for a Federal Reserve rate hike by March.
The greenback stood at ¥116.115, little changed from yesterday, when it rallied back toward Tuesday's high of 116.355, lifted by more hawkish rhetoric from Fed official and a strong US jobs report.
Anticipation of faster policy tightening dented riskier assets, with the British pound retreating from a near two-month high and cryptocurrencies tumbling toward multi-month lows.
Fed officials said the “very tight” US labour market might warrant raising rates sooner, and indicated they could also reduce the central bank's overall asset holdings to tame high inflation ― a process dubbed quantitative tightening (QT) ― minutes of their December 14-15 policy meeting showed.
In the wake of that, futures on the federal funds rate priced in a roughly 80 per cent chance of a quarter-percentage-point Fed hike by its March meeting.
Earlier in the day, the ADP National Employment report showed private US payrolls surged last month by more than double what economists polled by Reuters had forecast, potentially raising expectations for the non-farm payrolls numbers due tomorrow.
“With odds for a rate hike in March rising and the threat of QT this year, the USD should maintain resilient form,” TD Securities strategists wrote in a report.
“That should leave USDJPY supported over time, though we think a very hawkish Fed could cause some short-term indigestion for risk markets.”
The US dollar index, which measures the currency against the yen and five other major peers, was about flat at 96.209 from Wednesday, when it rebounded from intraday losses as steep as 0.44 per cent following release of the minutes.
Five-year Treasury yields, which are keenly sensitive to interest rate expectations, climbed to an almost two-year high.
Despite an ever-more-hawkish Fed over recent months, which signalled three quarter-point rate increases for this year at its December policy meeting, gains for the dollar index have stagnated since hitting a 16-month high at 96.938 in late November.
“Trend and momentum dynamics continue to favour the USD, but prices will have to pierce the Q4 2021 highs in order to reassert the uptrends in most cases,” George Davis, a strategist at RBC, wrote in a report, pointing to euro, sterling and the Australian dollar in particular.
The euro stood at US$1.1310 (RM4.74) as it continued to consolidate in the middle of its trading range since mid-November. It dipped as low as US$1.1186 on November 24 for the first time since July 2020.
Sterling traded at US$1.3550, after retreating overnight from a nearly two-month high of US$1.3599 following the Fed minutes.
The Aussie slipped to US$0.7215, down from an intraday high of US$0.7273 yesterday.
In cryptocurrencies, bitcoin stabilised at around US$43,600 after dipping to a one-month low of US$42.413.59 in the previous session.
Ether recovered some composure to trade around US$3,500, after slumping to US$3,410.22 overnight for the first time since mid-October. ― Reuters
