On Tuesday, the American Dollar had shelved robust gains against safe-haven Japanese yen, hitting the highest in more than five years, as growing investors’ views on omicron that the newly identified pandemic variant would highly unlikely to push a roaring US economy off-course alongside expectations over at least three rate hikes from the US Federal Reserve this year had added to impetus.
Corroborating FX traders’ optimism, US Treasury Yields rose sharply on Tuesday as economic data had underscored a likely shoot-up in US consumer spending, the lifeblood of US economy accountable for roughly a two-third of entire US economic activities, until at least first half of 2022, suggested analysts.
Aside from that, US 5-year Treasury bond notes, which are utterly related to rate-hike anticipations, spiked to 1.36 per cent, the strongest level since February 2020, while US 10-year Treasury bond yields climbed to 1.64 per cent, muscling up a meteoric rally in American Dollar against most of its major peers.
Besides, according to data from CME FedWatch, FX traders anticipating a 25 bps (basis percentage point) rate-hike as early as by March, had topped 60 per cent, helping the greenback to extend its latest leg of rally into a fifth straight session in a row.
Concomitantly, economic data revealed earlier in the day that US voluntary job quits had spiked to a record 4.5 million later last year, leading to analysts’ belief that US employers would continue to hike wages deeper into 2022 which would eventually beef up consumer spending with US household wealth hovering at an all-time high.
US Dollar hits fresh five-year peak against Japanese Yen
Citing statistics, in the day’s FX market wind-down, the American Dollar Index (DXY) measured against a basket of six major currencies on an average, added 0.06 per cent to 96.28, as large-scale gains against safe-haven assets had been eclipsed by an upswing in commodity-linked loonies like of Canadian Dollar with crude oil bull-run sharply clawing back.
Canadian Dollar gained 0.28 per cent to $1.2707 against its American counterpart, while risk-sensitive Aussies jumped 0.67 per cent to $0.7238. Nevertheless, the Japanese Yen softened as much as 0.65 per cent against its American peer to 116.08 dollar per yen, the highest since January 11, 2017, while euro edged 0.05 per cent lower to $1.1288.
However, sterling gained 0.45 per cent to $1.3531, mostly riding on the back of a rate-hike optimism. Meanwhile, addressing to a yield-driven tear in Japanese yen on Tuesday’s FX market, “2022 is here and the market is just bracing for higher rates from the Fed, so that has been the key catalyst pushing dollar/yen higher.
The main thing here, certainly Omicron is very unpredictable, but the market’s take so far is that it doesn’t look like it is going to deal a significant blow to the recovery, so that just increases the spotlight on central banks and how they are likely to push interest rates higher”.