TOKYO Reuters - The dollar hung close to a 32 year peak against the yen on Wednesday while trading up from a two-week trough against a basket of major peers as traders weighed the risk sentiment against the prospect of aggressive Federal Reserve rate hikes.
The pound was consolidated in the middle of its trading range this week as the market digested the British government's fiscal policy reversal and the Bank of England'sBank of England's decision not to sell any longer-duration gilts this year. The euro was close to a two-week high.
The dollar pushed as high as 149.395 yen overnight for the first time since August 1990, before trading at 149.18 early in Wednesday's Asian session.
The Ministry of Finance and Bank of Japan are on high alert as the currency pair pushes towards the key psychological barrier at 150. A cross of 145 about a month ago spurred the first yen-buying intervention since 1998.
On Wednesday, Japanese Finance Minister Shunichi Suzuki said he was checking currency rates meticulously and with more frequency.
The dollar, which is currently the safe-haven currency, has sagged this week due to the bear rally in equities around the world after some upbeat earnings.
Market pricing for two more 75 basis point hikes from the Fed this year is a good indicator of support as it focuses on red-hot inflation, even at the risk of a recession.
Fiscal uncertainty in Britain is impacting the outlook for bond markets in the world.
The dollar index, which measures the currency against six peers, moved up to 112.01, after dropping to the lowest since October 6 at 111.76 overnight. It was a multi-decade peak at 114.78 at the end of September.
Sean Callow, a currency strategist at Westpac in Sydney, said that this is not a more than a modest pause in the dollar's bull run.
Intervention risk remains on the yen, since the MOF has already crossed the Rubicon but its purpose is probably only to limit the scale of speculative positioning rather than to drive a sustained reversal, Callow said.
A number as 150 will probably take some time to break short-term, but given the BOJ's position as the only developed-market central bank still pursuing a negative interest rate policy, it's hard to see why the pair wouldn't extend into the 150 -- 155 area, Callow said.
The sterling rebounded 0.27% to $1.1349, rebounding from a 0.34% decline in the previous session. The currency was initially up on Tuesday after the Financial Times reported that the Bank of EnglandBank of England would delay quantitative tightening, but fell after the Bank called the article inaccurate. The BoE said it would start selling some of its huge collection of British government bonds from Nov. 1, but it wouldn't sell any longer-duration gilts that have been at the centre of market volatility in the wake of the government's mini budget. The euro was about flat at $0.9857, just below Tuesday's high of $0.98755, a level last seen on October 6.
Economists predict a 75 basis point rate hike from the European Central Bank on Thursday.
The consumer price data from Tuesday raised expectations for continued tightening by the Reserve Bank, as the New Zealand dollar was elevated following Tuesday's blowout consumer price data. The previous session's two week high was $0.5719, which was close to the previous session's two-week high of $0.5695.
The Aussie was trading at $0.6322, up 0.12% from Tuesday.