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Dollar extends gains against yen as big Fed hike bets ramp up

08/07/2022 | 09:25pm EDT
Illustration shows U.S. Dollar banknotes

TOKYO (Reuters) - The dollar extended it best rally against the yen since mid-June on Monday, buoyed by higher Treasury yields after blockbuster U.S. jobs data lifted expectations for more aggressive Federal Reserve policy tightening.

The greenback was last 0.31% higher at 135.42 yen, and earlier rose to 135.585 yen, its highest since July 28, after surging 1.57% in the previous session, its biggest single-day gain since June 17.

The dollar index, which measures the currency against six counterparts, stood at 106.77, from a Friday peak of 106.93, also the strongest since July 28.

Traders currently see a 73.5% probability the Fed continues the pace of 75 basis-point interest-rate increases for its next policy decision on Sept. 21, from about 41% before surprisingly strong payrolls data on Friday raised worries that wage growth would fuel inflationary pressures.

The focus this week will be on the U.S. consumer price index due Wednesday, and whether it can cement the odds for super-sized rate rises. Analysts polled by Reuters expect annual inflation eased to 8.7% in July from 9.1% previously.

"It will likely take a number below 8.4% to get the odds of a 50bp hike in September as the default setting," although that "seems unlikely," Chris Weston, head of research at Pepperstone, wrote in a note.

"I wouldn't want to be short USDs if the CPI print comes in above 9%."

The two-year Treasury yield remained elevated at 3.2628% in Tokyo trading on Monday, after reaching 3.3310% at the end of last week, a level not seen since mid-June.

The 10-year yield stood at 2.8470%, sticking close to the two-week high of 2.8690% touched Friday.

The negative spread between the two- and 10-year yields was 42 basis points, having hit 45 basis points on Friday, the most since August 2000. An inverted yield curve is widely interpreted as a pre-cursor to a recession.

Elsewhere, the euro sank 0.35% to $1.01595 while sterling slid 0.19% to $1.2050.

The British pound dropped as low as $1.2004 on Friday, a day after the Bank of England raises interest rates by an as-expected half a point at the same time as warning of a protracted downturn.

"The Bank of England's forecast of recession underpins the vulnerability of the pound going forward," Rabobank senior FX strategist Jane Foley wrote in a note, predicting sterling could dip to $1.14 within three months.

Meanwhile, the Australian dollar slipped 0.06% to $0.6907, while the New Zealand dollar fell 0.19% to $0.62315.

(Reporting by Kevin Buckland; Editing by Sam Holmes)

By Kevin Buckland

© Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
ACCENT GROUP LIMITED 2.96% 1.39 Delayed Quote.-44.90%
AUSTRALIAN DOLLAR / BRITISH POUND (AUD/GBP) 0.69% 0.57237 Delayed Quote.6.94%
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.53% 0.88395 Delayed Quote.-3.32%
AUSTRALIAN DOLLAR / EURO (AUD/EUR) 0.69% 0.65661 Delayed Quote.3.53%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) 0.17% 93.838 Delayed Quote.12.46%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) -0.32% 1.13167 Delayed Quote.7.14%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) 0.14% 0.63837 Delayed Quote.-2.47%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) -0.28% 0.64928 Delayed Quote.-10.43%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) -0.69% 1.74596 Delayed Quote.-6.45%
BRITISH POUND / EURO (GBP/EUR) 0.00% 1.14684 Delayed Quote.-3.10%
BRITISH POUND / JAPANESE YEN (GBP/JPY) -0.54% 163.857 Delayed Quote.5.21%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) -1.02% 1.97613 Delayed Quote.0.21%
BRITISH POUND / US DOLLAR (GBP/USD) -0.99% 1.13382 Delayed Quote.-16.21%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.52% 1.131145 Delayed Quote.3.43%
CANADIAN DOLLAR / BRITISH POUND (CAD/GBP) 0.18% 0.647845 Delayed Quote.10.66%
CANADIAN DOLLAR / EURO (CAD/EUR) 0.19% 0.743008 Delayed Quote.7.18%
CANADIAN DOLLAR / JAPANESE YEN (CAD/JPY) -0.34% 106.159 Delayed Quote.16.46%
CANADIAN DOLLAR / US DOLLAR (CAD/USD) -0.78% 0.73453 Delayed Quote.-7.24%
DOW JONES FXCM DOLLAR INDEX 0.31% 13334.8 Real-time Quote.9.30%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.69% 1.52242 Delayed Quote.-3.41%
EURO / BRITISH POUND (EUR/GBP) 0.01% 0.87189 Delayed Quote.3.22%
EURO / JAPANESE YEN (EUR/JPY) -0.53% 142.872 Delayed Quote.8.61%
EURO / NEW ZEALAND DOLLAR (EUR/NZD) -0.98% 1.72323 Delayed Quote.3.44%
EURO / US DOLLAR (EUR/USD) -0.98% 0.98858 Delayed Quote.-12.19%
INDIAN RUPEE / AUSTRALIAN DOLLAR (INR/AUD) 0.28% 0.018922 Delayed Quote.2.01%
INDIAN RUPEE / BRITISH POUND (INR/GBP) 1.21% 0.010832 Delayed Quote.9.22%
INDIAN RUPEE / EURO (INR/EUR) 0.94% 0.012406 Delayed Quote.5.87%
INDIAN RUPEE / JAPANESE YEN (INR/JPY) 0.19% 1.773521 Delayed Quote.14.56%
INDIAN RUPEE / US DOLLAR (INR/USD) -0.20% 0.012253 Delayed Quote.-8.62%
JAPANESE YEN / SWISS FRANC (JPY/CHF) 0.12% 0.6792 Delayed Quote.-13.32%
NEW ZEALAND DOLLAR / JAPANESE YEN (NZD/JPY) 0.47% 82.898 Delayed Quote.5.00%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.08% 0.57378 Delayed Quote.-16.33%
US DOLLAR / AUSTRALIAN DOLLAR (USD/AUD) 0.28% 1.539741 Delayed Quote.11.66%
US DOLLAR / BRITISH POUND (USD/GBP) 0.99% 0.881904 Delayed Quote.19.39%
US DOLLAR / EURO (USD/EUR) 0.97% 1.011521 Delayed Quote.15.63%
US DOLLAR / JAPANESE YEN (USD/JPY) 0.46% 144.521 Delayed Quote.25.60%