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FOREX-Dollar pushes towards fresh 24-year peak versus yen after U.S. CPI shock

FOREX-Dollar pushes towards fresh 24-year peak versus yen after U.S. CPI shock

Reuters · 09/13/2022 20:44
FOREX-Dollar pushes towards fresh 24-year peak versus yen after U.S. CPI shock

By Kevin Buckland

- The dollar climbed close to a 24-year peak against the yen on Wednesday amid a jump in U.S. yields after hotter-than-expected inflation boosted bets for even more aggressive monetary tightening by the Federal Reserve week.

The dollar rose as high as 144.965 yen JPY=EBS in the Asian session, taking it close to last Wednesday's high of 144.99, a level seen since August 1998, before last trading little changed at 144.56.

Overnight, the currency pair, which is extremely sensitive to rate differentials, surged 1.26% as 10-year Treasury yields climbed to a three-month high following an unexpected rise in the U.S. consumer price index (CPI) for August.

"This has really shattered the illusion ... that inflation had peaked and was coming down," Ray Attrill, head of currency strategy at National Australia Bank, said in a podcast. "Hence markets have decided that week's Fed decision is between 50 and 75 (basis point increase), it's between 75 and 100."

Money markets currently price 37% odds for a full percentage-point hike on Sept. 21, versus a 63% probability of another 75 basis point move.

Nomura's economists also said they believe a 100 basis-point rate hike is the most likely outcome.

"Markets underappreciate just how entrenched U.S. inflation has become and the magnitude of response that will likely be required from the Fed to dislodge it," they wrote in a .

The dollar index =USD, which measures the currency against six major peers including the yen, euro and sterling, was little changed at 109.750, after surging 1.44% overnight, its biggest one-day percentage gain since March 2020.

The euro EUR= edged up 0.11% to $0.9981, clawing back a little of Tuesday's 1.52% tumble. Sterling GBP= rose 0.17% to $1.151, but after a 1.61% plunge overnight.

"The dollar is screaming overvaluation, but in order to see that as correct, you're going to some sort of catalyst for a cyclical downturn in the dollar, and these latest developments have challenged that," NAB's Attrill said.

The risk-sensitive Aussie dollar AUD=D3 rose 0.25% to $0.6750, although that jump paled in comparison with its precipitous 2.26% slide overnight.

Leading cryptocurrency bitcoin BTC= lost another 0.21% to $20,191.00, following a 9.93% decline on Tuesday.

(Reporting by Kevin Buckland; Editing by Kenneth Maxwell)