The dollar went toward a five-week high against major peers on Monday as investors increased bets on the Federal Reserve to keep its monetary policy tight for longer while waiting for a U.S. consumer price report to be released the next day.
The Japanese government was going to nominate a candidate who supports the current policy settings as the new central bank governor on Tuesday.
The risk-sensitive Australian and New Zealand dollars dipped with Asian equities worried that higher U.S. rates will choke growth. The pound was also dipped.
The dollar has been well supported since the much-stronger than expected U.S. jobs data earlier this month, and the Fed comments have leaned more toward the hawkish side, but of course the focus is tomorrow's CPI, said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.
I think the market is more worried about upside risks to inflation than downside risks. Consumer prices went up in December, rather than falling as previously estimated, due to revisions to the previous data set by the CPI.
The University of Michigan surveys showed a one-year inflation outlook of 4.2 per cent, higher than the final number in January. The Michigan survey is one of the indicators that the central bank of the U.S. tracks, according to Jerome Powell, Chair of the Fed.
Money markets are poised for a peak in U.S. interest rates of just below 5.2 per cent around July, compared to the current target rate of 4.5 -- 4.75 per cent.
The dollar index - which measures the dollar against six counterparts, including the yen, euro and sterling - added 0.068 per cent to 103.65, which is close to Tuesday's high of 103.96, the strongest level since January 6.
The U.S. currency rallied by 0.6 per cent to as high as 132.20 yen.
Sources said on Friday that former Bank of Japan board member Kazuo Ueda is poised to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.
Markets are starting to understand that the new governor won't be as hawkish as investors initially thought, said Naka Matsuzawa, chief strategist at Nomura in Tokyo.
Matsuzawa said that his stance on the current policy is more balanced, or a bit dovish, which will keep the yen weak.
The euro fell by 0.09 per cent to $1.06685 and was earlier at $1.0656 for the first time since Jan. 9. The pound was trading at $1.20475, down 0.1 per cent on the day.
The Aussie fell 0.09 per cent to $0.6912, and New Zealand's kiwi lost 0.11 per cent to $0.6304.