Rising US Yields Support Dollar; yen slides after BoJ meeting

Light shines on a U.S. one hundred dollar bill next to a Japanese 10,000 yen bill in this illustration taken February 28, 2013. REUTERS/Shohei Miyano/Illustration

LONDON, Jan 18 (Reuters) – A rise in U.S. Treasury yields pushed the dollar index to a six-day high on Tuesday, while the Japanese yen fell after the Bank of Japan said it was stick to its ultra-accommodative monetary policy.

The US Federal Reserve meets next week. It is expected to raise rates in March, for the first time since the start of the coronavirus pandemic, and investors expect four rate hikes in 2022.

As investors braced for the possibility of the Fed being more hawkish than expected, US Treasury yields jumped on Tuesday, with two-year yields (which track short-term rate expectations) crossing 1% for the first time. since February 2020.

The US 10-year yield also hit a two-year high.

The US dollar strengthened against a basket of currencies, hitting a six-day high at 95.454 during Asian trade, before gradually loosening overnight. At 08:36 GMT, it was at 95.308, up 0.1% on the day.

The euro-dollar fell 0.1% to $1.1395.

THE YEN HAS SLIDED

The yen fell after the Bank of Japan said it would maintain its ultra-loose monetary policy even as its global counterparts prepare to exit policies in crisis mode. Read more

As of 0838 GMT, the dollar was up 0.1% against the yen at 114.72 as the pair hit an overnight high of 115.06.

“We continue to expect the BoJ to stick to its current policy framework at least until Governor Kuroda’s term ends next April,” MUFG currency analyst Lee Hardman wrote in a note. to customers.

“The growing divergence between BoJ and Fed policy expectations should continue to put upward pressure on USD/JPY,” he wrote.

However, Hardman noted that the pair failed to break above the 117 level as it strengthened this month.

“This failure and the fact that the market was short of JPY means that the prospect of a quick rebound in USD/JPY is diminishing… some recovery in USD/JPY is possible, but this correction could be a sign of the beginning of the end of the USD/JPY uptrend,” he said.

The Aussie dollar fell 0.3% on the day to $0.7193. The New Zealand dollar also fell 0.3%.

Both currencies faced disappointing domestic data as Australian consumers daunted by the rapid spread of coronavirus and record deaths. Read more

The pound was steady at $1.36405, supported by UK jobs data. Read more

China’s central bank said it would do more to support growth, while steadily reducing funding costs and keeping the yuan’s exchange rate stable, the bank’s vice governor said. Read more

The central bank unexpectedly cut borrowing costs on its medium-term loans for the first time since April 2020, as market analysts expected further policy easing this year to cushion an economic slowdown. Read more

The yuan hit its highest level in more than three years, helped by trade settlement inflows. But the yuan’s advantage of having a higher yield is waning: the spread between Chinese and US 10-year Treasury yields has narrowed to its narrowest since May 2019.

Elsewhere, bitcoin was little changed around $41,850, still well below the all-time high of $69,000 it hit last November. Read more

Reporting by Elizabeth Howcroft, editing by Ed Osmond

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