Funding currencies are under pressure due to the U.S. hike bets firm in the U.S.
SYDNEY, January 5, Reuters -- The yen was pinned near a five-year low on Wednesday, and nursing losses on other crosses on Wednesday as traders wagered Japan would lag a looming wave of global policy tightening as inflation goes ahead around the world.
On Tuesday, the yen fell through support, which now turns resistance, to around 115.50 per dollar to hit the five-year trough at 116.35.
It hovered around 116.05 during a quiet Asian session.
The yen fell through its 200 day moving average to a two-month low of 131.45 per euro, recovering slightly to 131.00 in Asia. It made a six-year low against the Swiss franc and a seven-week trough on the Aussie that rebounded slightly from those levels on Wednesday.
The COVID 19 case numbers in the U.S. and a little higher in China seem to be boosting supply-chain concerns and fears of higher inflation in the U.S. rather than boosting growth concerns, said Andrew Ticehurst, Nomura economist Andrew Ticehurst.
This has resulted in a sharp jump in the U.S. Treasury yields in the first trading days of the year, and the widened gap on Japanese yields anchored by the central bank has hurt the yen.
Terence Wu, a FX strategist at OCBC Bank in Singapore said that the 2017 dollar yen high at 118.60 may be the next natural target and cannot be ruled out for now.
A similar dynamic has put the euro under pressure as European policymakers are likely to be behind peers in Britain and the United States on tightening. The common currency held near a two-week low against the dollar at $1.1288 and hit an almost two-year trough of 83.32 pence.
Australian and New Zealand dollars struggled to rally after fears of Omicron delaying the world's recovery subside.
The kiwi was the last to buy $0.6803 and the Aussie $0.7228. Both are just shy of resistance around $0.6857 and $0.7270. The U.S. dollar index was rangebound at 96.269.
Minutes from the Federal Reserve's December meeting, due to be published at 1900 GMT, could highlight U.S. policymakers' newfound sensitivity to inflation and readiness to act. The trajectory will be followed by partial U.S. labor data on Wednesday and non-farm payrolls on Friday.
The futures of Fed Funds show that traders are expecting rates to be lifted by May. Analysts at Standard Chartered expect to see 25 basis point hikes in March and June, rather than a hike in September.
The U.S. two-year and five-year yields are close to pandemic highs and benchmark 10 year yields are up about 14 basis points this week.
There is a bit of caution as markets are thinned by holidays.
Brent Donnelly, trader and president at analytics firm Spectra Markets, said that despite the explosive rally in USD JPY, I still can't get excited about the idea of a stronger USD right now.
The rates move has grabbed everyone's attention, but it's hard to know how much to read into a move on the first trading day of the year. How can the Fed hike more than a few times without breaking everything? Since Dec. 20 the pound has rallied about 2.7% on the dollar in a dozen trading days, as traders reckon surging Omicron cases in Britain won't deter the Bank of England from lifting rates.
Prime Minister Boris Johnson is not happy with lockdown measures and is hoping that caution and vaccinations can prevent serious illness despite surging cases. The pound was the last to buy $1.3527.