Hannah Lang
NEW YORK (Reuters) – The dollar rose on Wednesday, helped by rising U.S. bond yields ahead of key inflation data later in the week, and strengthened against the Japanese yen.
The dollar hit 157.715 yen on Wednesday, approaching levels that led to bouts of likely intervention from Tokyo in late April and early May.
The price was last traded at 157.665 yen, up 0.3% on the day.
“I think the dollar/yen rate will continue to rise, as it has in all yen pairings,” said Brad Bechtel, global head of FX at Jefferies. “He’s essentially tiptoeing his way back to 160.”
Slightly softer US consumer price inflation data weakened the dollar across the board this month. U.S. Treasury yields have since resumed their rise, with the benchmark 10-year yield hitting its highest level in nearly four weeks at 4.57%.
The main drivers were Tuesday’s poor auction of two- and five-year bonds, which raised doubts about demand, and data showing U.S. consumer confidence unexpectedly improved in May.
The stock was last up 0.43% at 105.11. The core US personal consumption price (PCE) index, the Federal Reserve’s preferred measure of inflation, will be released on Friday. It is expected to remain stable on a monthly basis.
With the exception of the Japanese yen, most foreign currencies have risen against the U.S. dollar since mid-April, said Mark Chandler, chief market strategist at Bannockburn Global Forex. “I think this move is over and we should expect the dollar to recover.”
The dollar fell 0.47% to $0.6618 even after Australian consumer price inflation unexpectedly rose to a five-month high in April, raising risks that the next move in local interest rates could be a hike. [AUD/]
There was also a carry trade for the yen, which involves borrowing in a low-yielding currency to invest in higher-yielding currencies.
“The yen remains under significant downward pressure and appetite for speculation is heightened by low exchange rate volatility,” Derek Halpenny, head of global markets EMEA research at MUFG, said in a note, citing elevated levels in euro/yen and sterling/yen. .
The euro fell to a near two-year low per pound of 84.84 pence, helped by strong regional inflation data in Germany.
It rebounded after nationwide data for Germany showed inflation rose slightly more than expected to 2.8% in May, although that is unlikely to change expectations for a rate cut by the European Central Bank next month.
The single currency was last down 0.49% at $1.0804.
The pound weakened to $1.2702 a day after hitting a two-month high.