LONDON: The dollar rose on Tuesday to a fresh 20-year high against the Japanese yen and tested a two-year peak against the euro, supported by high US Treasury yields.
The dollar index, which measures the greenback against six other currencies, climbed past 101 for the first time in more than two years. It edged 0.07% lower at 100.74, down 0.1% at 0825 GMT.
The dollar’s gains have been most striking against the yen, climbing to its highest level of 128.32 yen against the Japanese currency since May 2002. It was last up 1.3% at 128.24 yen.
The dollar has risen 5.4% on the yen so far this month, which would be its second-biggest monthly percentage gain since 2016 after last month’s 5.8%.
The euro recovered some grounds, trading 0.25% higher against the dollar at $1.08095, but stayed just off last week’s two-year low of $1.0756.
“Policy divergence between the Fed and low-yielding central banks (European Central Bank, Bank of Japan) continues to argue in favour of USD strength,” said Francesco Pesole, FX Strategist at ING.
The benchmark US 10-year Treasury yield on Tuesday was just off its three-year high of 2.884% hit on Monday. Yields on 10-year US inflation-linked bonds are within touching distance of turning positive for the first time in two years.
Expectations that the US Federal Reserve will tighten its monetary policy have continued to provide support to the dollar.
US inflation is “far too high”, St. Louis Federal Reserve Bank President James Bullard said on Monday as he repeated his case for increasing interest rates to 3.5% by the end of the year.
In the meantime, the BoJ has been intervening to keep the yield on Japanese 10-year government bonds around 0% and no higher than 0.25%.
Many investors are betting the yen has further to fall. The latest CFTC data for the week ending April 12 shows net short yen positions are the largest in three and a half years.
Japanese Finance Minister Shunichi Suzuki made the most explicit warning against the yen’s recent slump on Tuesday, saying the damage to the economy from a weakening currency at present is greater than the benefits from it.
Elsewhere, the dollar rose to as high as 0.9466 Swiss francs, its highest in a year.
Sterling was at $1.3026, in sight of its 17-month low against the dollar of $1.2973, hit last week.
European currencies weren’t helped by the latest fighting in Ukraine.
The Australian dollar rose 0.56% from Monday’s one-month low and was at $0.739, given some support by minutes published Tuesday from the Reserve Bank of Australia’s April policy meeting, which suggested the central bank was edging closer to raising interest rates for the first time in more than a decade.
Bitcoin also managed to find its feet, trading around $40,800 after hitting a one-month low of $38,547 on Monday.