The dollar flirted with the psychological threshold of 150 yen on Tuesday and remained relatively stable ahead of a major US inflation estimate later in the day, while bitcoin rocketed to a more than two-year high.
Trading in Asia remained mainly muted, with markets in China and Hong Kong still closed for the Lunar New Year holidays and traders on edge ahead of Tuesday’s publication of consumer pricing data in the world’s largest economy.
The dollar surged to a more than two-month high of 149.58 yen, pushing closer to the carefully monitored 150 mark, which experts said would likely prompt further jawboning from Japanese policymakers in an attempt to maintain the currency.
The yen, which has already fallen more than 5% versus the dollar this year, is under continued pressure as investors reduce their expectations for the size and pace of the Federal Reserve’s easing cycle.
Yen bears are also encouraged by hints that the Bank of Japan may resist swiftly raising rates, even if it leaves negative interest rates this year, as markets expect.
“It is kind of a yield tale. Yields in the United States are at their highs for 2024, which has obviously benefited the dollar/yen,” said Tony Sycamore, an IG market analyst.
“It is also supported by carry. With volatility so low and… for 2024, the markets have been very content to add risk to their portfolios, and the carry trade
The New Zealand dollar lost 0.38% to $0.6105, following a Reserve Bank of New Zealand poll revealed on Tuesday that the country’s inflation forecasts plummeted to more than two-year lows in the first quarter.
The euro slipped 0.04% to $1.0767, while sterling declined 0.1% to $1.26165.
A recent run of strong economic statistics in the United States, notably a blowout employment report this month, has raised hopes that interest rates will remain higher for longer.
Markets are now pricing in roughly 110 basis points of rate reduction from the Fed this year, commencing in May, down from around 160 basis points at the end of last year.
The Federal Reserve Bank of New York reported in its January Survey of Consumer Expectations on Monday that inflation predictions for a year and five years from now remained constant at 3% and 2.5%, respectively.
Inflation is expected to climb by 2.4% during the next three years, the lowest since March 2020, down from 2.6% in December.
“Obviously, the US dollar has really benefited from the resilient data we’ve seen recently, and we’ve sort of seen that the U.S. economic outperformance story is really what’s driving currency markets overall,” said Kyle Rodda, senior financial market analyst at Capital.com.
“You’re not really seeing that same level of strength in Europe and anywhere in Asia… and that’s definitely showing the appeal for the greenback.”
Against a basket of currencies, the dollar rose 0.04% to 104.19. The Australian dollar fell 0.18 percent to $0.65195.
In cryptocurrency, bitcoin reached its highest level since December 2021 at $50,383 and remained above $50,000 for the second day straight.
The world’s largest cryptocurrency has surged over 18% this year, aided by last month’s regulatory approval of U.S.-listed exchange traded funds (ETFs) meant to follow it.
Analysts believe the recent boost to bitcoin comes ahead of its halving event, which will reduce the payout for successfully mining a bitcoin block in half.
“This is a really interesting move. The assumption of rate reduction is obviously helpful, but it does not explain what has truly put bitcoin on fire over the last four or five sessions,” said IG’s Sycamore.