Dollar goes for best rally against yen since mid-June

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Dollar goes for best rally against yen since mid-June

The dollar went for its best rally against the yen since mid-June on Monday, buoyed by higher Treasury yields after the U.S. jobs data lifted expectations for more aggressive Federal Reserve policy tightening.

The greenback was last 0.31% higher at 135.42 yen, and rose earlier to 135.585 yen, its highest since July 28, after surging 1.57% in the previous session, its biggest single-day gain since June 17.

The dollar index, which measures the currency against six counterparts, was at 106.77 from a Friday peak of 106.93, the strongest since July 28.

The Fed will increase interest-rate increases by 75 basis-points for its next policy decision on Sept. 21, from about 41%, before surprisingly strong payrolls data on Friday raised concerns that wage growth would cause inflationary pressures.

The U.S. consumer price index is due Wednesday, and will be the focus this week, and whether it will cement the odds for super-sized rate rises. Injuries fell to 8.7% in July, from 9.1% previously, according to analysts polled by Reuters.

Chris Weston, head of research at Pepperstone, wrote in a note that it would likely take a number below 8.4% to get the odds of a 50 bp hike in September as the default setting.

I wouldn't want to be short USDs if the CPI print comes in above 9%. The two-year Treasury yield remained elevated at 3.2628% in Tokyo trading on Monday after reaching 3.3310% at the end of last week, a level not seen since mid-June.

The 10 year yield stood at 2.8470%, close to the two-week high of 2.8690% touched Friday.

The negative spread between the two and 10 year yields was 42 basis points, having hit 45 basis points on Friday, the most since August 2000. An inverted yield curve is widely interpreted as a pre-cursor to a recession.

The euro sank 0.35% to $1.01595, while the sterling fell 0.19% to $1.2050.

The Bank of England raised its interest rates by half a point on Friday, a day after the British pound dropped as low as $1.2004, a day after it warned of a protracted downturn.

In a note from Jane Foley, senior FX strategist at the Bank of England, the Bank of England predicts that sterling could dip to $1.14 within three months, according to Rabobank senior FX strategist Jane Foley.

The Australian dollar slipped 0.06% to $0.6907, while the New Zealand dollar fell 0.19% to $0.62315.