LONDON, January 18, Reuters -- A jump in U.S. Treasury yields pushed the dollar index to a six-day high on Tuesday, while Japan's yen fell after the Bank of Japan said it would stick to its ultra-loose monetary policy.
The U.S. Federal Reserve meets next week. In March, the rate is expected to be raised, for the first time since the start of the coronaviruses epidemic, and investors are pricing in four rate hikes in 2022.
The two-year yields that track short-term rate expectations crossed 1% for the first time since February, 2020, as investors braced for the possibility of the Fed being more hawkish than expected.
The U.S. 10 year yield hit a two-year high.
The U.S. dollar surged against a basket of currencies, hitting a six-day high of 95.454 during Asian trading, before easing gradually overnight. It was at 95.308 at 0836 GMT, up 0.1% on the day.
The euro-dollar was down 0.1% at $1.1395.
The yen slipped after the Bank of Japan said it would maintain its ultra-loose monetary policy even as its global counterparts move towards exiting from crisis-mode policies.
The dollar was up 0.1% against the yen at 114.72 at 0838 GMT, with the pair reaching as high as 115.06 overnight.
We continue to expect the BoJ to stick to their current policy framework until at least Governor Kuroda's term ends next April, said Lee Hardman, MUFG currency analyst.
He wrote that there should be upward pressure on USD JPY because of the widening differences between BoJ and Fed policy expectations.
Hardman noted that the pair did not pass the 117 level as it strengthened this month.
The possibility of a rebound for USD JPY is diminishing due to the failure of the market and the fact that the market was short JPY. The Australian dollar fell 0.3% on the day to $0.7193. The New Zealand dollar was down 0.3%.
Both currencies faced disappointing domestic data, with Australian consumers cowed by the rapid spread of coronaviruses and record deaths.
The British pound was flat at $1.36405, supported by UK jobs data.
The central bank of China said that it would do more to support growth while lowering financing costs and keeping the exchange rate stable, while keeping the yuan exchange rate stable, the bank's vice governor said.
Market analysts expect more policy easing this year to cushion an economic slowdown, as the central bank cut the borrowing costs of its medium-term loans for the first time since April 2020.
Trade settlements helped the yuan hit its highest in more than three years. The spread between Chinese and U.S. 10 year Treasury yields has shrunk to its narrowest since May 2019 because of the yuan's advantage from having a higher yield.
The value of the digital currency was little changed around $41,850, still well below the all-time high of $69,000 it hit last November.