itstargetnews
By Tom Westbrook
SINGAPORE (Reuters) – The dollar steadied on Thursday, after falling alongside cooling U.S. inflation and falling bond yields, while the yen hit a one-month high as the bets for a rate hike in Japan.
The yen was the main mover against the dollar after softer-than-expected US inflation data and extended gains in Asia as higher chances of Federal Reserve rate cuts coincided with murmurs of a Bank of Japan hike next week.
The yen traded firmly at 155.21 to the dollar, its strongest since Dec. 19. It has gained around 1.2% in the last two sessions.
Recent comments from BOJ Governor Kazuo Ueda and his deputy Ryozo Himino have made it clear that a hike will at least be discussed at next week’s policy meeting, and markets see about a 78% chance of a 25 basis point hike.
“The fact that they are talking about excursions right now, right before the meeting, may be testing the waters,” said Bart Wakabayashi, branch manager on State Street in Tokyo.
The euro was steady after US inflation data and was steady during the Asian day at $1.0283, while the greenback made small gains elsewhere and the dollar index eased three days of losses to rise a little to 109.18.
There was little direct reaction in currency markets to the Gaza ceasefire deal, although the Israeli shekel hit a one-month high on Wednesday.
US core inflation was 0.2% month-on-month in December, in line with forecasts and below November’s 0.3%. Annualized, the 3.2% reading was below expectations of 3.3%. That followed a similarly softer-than-expected reading of British inflation and comments from a Bank of England policymaker who said the time was right to cut interest rates.
Traders who have grown concerned about inflation responded with relief, buying stocks and sending benchmark 10-year Treasury yields up 13 basis points.
The currency’s reaction was somewhat softer and, in addition to gains in the yen, had started to ease on Thursday as traders cautiously eyed still-strong US economic readings and possible tariffs along with the inauguration of Donald Trump on January 20 as president.
“Of course the dollar has outperformed rate spreads of late,” Deutsche Bank macro strategist Tim Baker said in a note. “But it’s not that big. The dollar should increase the risk premium given the geopolitical context.
“It’s also completely normal to see dollar strength like this when US growth is outperforming its peers by this measure, and in previous episodes the dollar has outperformed this ratio.”
