Dollar Down, Yen at Five-Year Low as Fed Interest Rate Hikes Loom

By Gina Lee

Investing.com – The dollar was down on Wednesday morning in Asia. The yen fell to a near five-year low against the U.S. currency and saw losses on other crosses over investors bets that the Bank of Japan (BOJ) would fall behind its counterparts in tightening monetary policy to curb high inflation.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.04% to 96.240 by 10:17 PM ET (3:17 AM GMT).

The USD/JPY pair edged down 0.18% to 115.93.

The AUD/USD pair edged down 0.13% to 0.7229 and the NZD/USD pair was down 0.21% to 0.6798.

The USD/CNY pair was steady at 6.3723 and the GBP/USD pair inched down 0.02% to 1.3529.

The yen hit the five-year low of 116.35 on Tuesday, as well as dropping through its 200-day moving average to a two-month low of 131.45 per euro. It was trading at around 131.06 per euro earlier in the session while falling to a more than six-year low against the Swiss franc and a seven-week low against the Australian dollar.

“Sharply higher COVID-19 case numbers in the U.S., and a little higher in China, appear to be primarily boosting supply-chain concerns and fears of higher inflation in the U.S., rather than boosting growth concerns,” Nomura economist Andrew Ticehurst told Reuters.

This led to a sharp jump in U.S. Treasury yields in the first trading days of 2022, with the widened gap on Japanese yields also hurting the yen.

Meanwhile, the U.S. Federal Reserve will release the minutes from its December meeting later in the day, which will be scrutinized for clues for the central bank’s rate hikes timetable.

Investors also await the U.S. jobs report, including non-farm payrolls and due on Friday, for further clues. But with Fed Funds futures showing that investors are betting on an interest rate hike by May 2022, Standard Chartered (OTC:SCBFF) analysts now expect 25-basis point hikes in March and June rather than one hike in September.

“Despite the explosive rally in the USD/JPY pair, I still can’t get excited about the idea of a stronger USD right now,” Spectra Markets president Brent Donnelly told Reuters.

“The rates move certainly has grabbed everyone’s attention but it’s hard to know how much to read into a move on the first trading day of the year. The big question remains: Can the Fed hike more than a few times without breaking everything?”