NEW YORK, Jan 4, Reuters - The US dollar was up for a fifth day against the Japanese yen for a fifth day, hitting a five-year high as investors viewed the Omicron variant as not likely to derail the global economy or delay the Federal Reserve's expected rate hikes.
The dollar is supported by a rise in U.S. Treasury yields on expectations for a Fed rate hike this year, with those forecasting a 25 basis-point hike at the March meeting of the central bank's policy-setting committee topping 60%, according to the CME FedWatch Tool.
Yields on U.S. 5 year notes, sensitive to rate hike expectations, reached the highest level since February 2020. Yields on U.S. 2 year notes, which also reflect the market view on interest rates, edged lower after touching a 22 month high on Monday.
The dollar index went up 0.06%, with the euro down 0.05% to $1.1288.
The Japanese yen fell by 0.65% compared to the dollar at 116.08 per dollar, after reaching a high of 116.34 against the yen, its highest level since Jan. 11, 2017.
The market is bracing for higher rates from the Fed, so that has been the key catalyst pushing the dollar yen higher, said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The main thing here is that Omicron is very unpredictable, but the market s take 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. The Minneapolis Federal Reserve Bank President Neel Kashkari said he expects the central bank to raise interest rates two times this year to address persistently high inflation, reversing his long-held belief that rates will need to stay at zero until at least 2024.
The U.S. Food and Drug Administration approved the use of a third dose of the Pfizer and BioNTech COVID 19 vaccine for children ages 12 to 15, and narrowed the interval for booster shot eligibility to five months from six.
The risk of hospitalization is lower because of studies showing that Omicron is less disruptive to the global economy than previous versions of the coronaviruses.
After hitting a two-month high of $1.3557 against the greenback and a near two-year high against the euro, the pound was trading at $1.3531, up 0.45% on the day, buoyed by expectations that the Bank of England will raise interest rates next month.
The dollar index lost ground after the Institute for Supply Management ISM said its index of factory activity fell to 58.7 last month, below the 60.0 estimate. That was the lowest since January, and followed a 61.1 reading in November.
In November, a record 4.5 million Americans quit their jobs, which will pressure businesses to increase wages in order to attract workers, according to other data.