The dollar edged toward a five-week high versus major peers on Monday as investors increased bets on the Federal Reserve keeping monetary policy tight for longer, while waiting for a U.S. consumer price report set for release the next day.
The yen tumbled, with the Japanese government set to nominate a candidate who backs the current policy settings as the new central bank governor on Tuesday.
The risk-sensitive Australian and New Zealand dollars eased with Asian equities on worries that higher U.S. rates will choke growth. Sterling also dipped.
“The dollar has been well supported since the much-stronger-than-expected U.S. jobs data earlier this month, and Fed comments have leaned more to the hawkish side, but of course the focus is tomorrow’s CPI,” said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.
“I think the market is more worried about upside risks to inflation, rather than downside risks.”
Ahead of Tuesday’s CPI report, revisions to the previous data set showed consumer prices rose in December instead of falling as previously estimated.
Separately, the University of Michigan surveys showed a one-year inflation outlook of 4.2%, higher than the final number in January. Fed Chair Jerome Powell has cited the Michigan survey as one of the indicators the U.S. central bank tracks.
Money markets are positioned for a peak in U.S. interest rates of just below 5.2% around July, compared with the current target rate of 4.5-4.75%.
The dollar index – which measures the greenback against six counterparts including the yen, euro and sterling – added 0.068% to 103.65, keeping close to last Tuesday’s high of 103.96, the strongest level since Jan. 6.
The U.S. currency rallied 0.6% to as high as 132.20 yen .
Sources said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.
“Markets are starting to understand that the new governor won’t be as hawkish as (investors) initially thought,” said Naka Matsuzawa, chief strategist at Nomura in Tokyo.
“His stance on the current policy is more balanced, or a bit dovish,” which will keep the yen weak, Matsuzawa said.
The euro eased 0.09% to $1.06685, and earlier touched $1.0656 for the first time since Jan. 9. Sterling was last trading at $1.20475, down 0.1% on the day.
The Aussie fell 0.09% to $0.6912, and New Zealand’s kiwi lost 0.11% to $0.6304.
