Dollar hovering near 5-year high to yen as U.S. Treasury rises

Dollar hovering near 5-year high to yen as U.S. Treasury rises

TOKYO, Jan 6, Reuters - The dollar hovered near a five-year high to the yen on Thursday, supported by a surge in the U.S. Treasury yields on rising bets for a Federal Reserve rate hike by March.

The dollar was 116.115 yen, little changed from Wednesday when it rallied back toward Tuesday's high of 116.355, lifted by more hawkish rhetoric from Fed official and a strong U.S. jobs report.

The British pound fell from a near two month high and tumbling toward multi-month lows because of the anticipation of policy tightening and the likelihood of quicker policy tightening.

Fed officials said the very tight U.S. labor market might warrant raising rates sooner, and indicated that they could also reduce the central bank's overall asset holdings to tame high inflation - a process called quantitative tightening QT minutes of their Dec. 14 -- 15 policy meeting.

The Fed's March meeting has predicted a quarter-percentage hike on the federal funds, which is roughly 80% of the chance of a quarter-percentage hike.

The ADP National Employment report showed private U.S. payrolls surged by more than double what economists polled by Reuters earlier in the day, potentially raising expectations for non-farm payrolls numbers due Friday.

With the threat of QT this year and the rise in March, the USD should be resilient, according to TD Securities strategists.

That should leave USDJPY supported over time, though we think a very hawkish Fed could cause some short-term indigestion for risk markets. The U.S. dollar index, which measures the currency against the yen and five other major peers, was about flat at 96.209 from Wednesday when it rebounded from intraday losses as steep as 0.44% after the release of the minutes.

The five-year Treasury yields, which are sensitive to interest rate expectations, climbed to an almost two-year high.

Despite an ever-more hawkish Fed over recent months, which signalled three quarter-point rate increases for this year at its December policy meeting, gains for the dollar index have stagnated since hitting a 16 month high of 96.938 in late November.

The euro was at $1.1310 as it continued to consolidate in the middle of its trading range since mid-November. It dipped as low as $1.1186 for the first time since July 2020.

The pound was trading at $1.3550 after retreating from a nearly two-month high of $1.3599 after the Fed minutes.

The Aussie fell to $0.7215, down from an intraday high of $0.7273 on Wednesday.

After dipping to a one month low of $42.413, the price of cryptocurrencies stabilized at around $43,600. After a downturn to $3,410, Ether recovered some composure to trade around $3,500. For the first time since mid-October, overnight overnight was 22.