NEW YORK: The US dollar rose for a fifth straight day against the Japanese yen on Tuesday to hit a five-year high as investors anticipated the Omicron variant would not derail the global economy or delay the Federal Reserve’s expected rate hikes.
A rise in US treasury yields on expectations for a Fed rate hike this year have supported the greenback, with those foreseeing at least a 25 basis point hike at the March meeting topping 60%, the CME FedWatch Tool found.
Yields on US 2-year notes, which are sensitive to rate hike expectations along with 5-year notes, were both higher, with the 5-year yield reaching its highest level since February 2020.
The dollar index rose 0.009%, with the euro up 0.03% to $1.1297.
The Japanese yen weakened 0.76% versus the greenback at 116.20 per dollar, after the dollar reached a high of 116.34 against the yen, its highest level since January 11, 2017.
“Absolutely, dollar/yen on a tear, it is all yield driven, 2022 is here and the market is just bracing for higher rates from the Fed, so that has been the key catalyst pushing dollar/yen higher,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington DC.
“The main thing here, certainly Omicron is very unpredictable but the market’s take so far 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.”
On Monday, the US Food and Drug Administration authorized 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.
Investors have come to view Omicron as potentially less disruptive to the global economy than previous variants, as studies have indicated the risk of hospitalisation is lower.
Sterling was last trading at $1.3539, up 0.50% on the day.
The dollar index pared gains after economic data from the Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 58.7 last month, below the 60.0 estimate. That was the lowest since last January and followed a 61.1 reading in November.
Asia’s factory activity grew in December as companies withstood rising global cases of the Omicron variant, though persistent supply constraints and rising input costs clouded the outlook for some economies.
Bitcoin rose 2.14% to $47,435.48. China has released a pilot of its digital yuan wallet application, the “e-CNY (Pilot Version)” app, as the country’s central bank steps up its push to develop its own digital currency.
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