SINGAPORE: The dollar strengthened broadly on Friday, punching to fresh 32-year highs above 150 yen, as US Treasury yields climbed to new multi-year peaks amid bets the Federal Reserve will keep raising interest rates despite the risks of recession.
Sterling sank toward the lowest level in a week as investors digested the news that British Prime Minister Liz Truss had quit after just six weeks in office.
The risk-sensitive Aussie and New Zealand dollars also retreated.
Fed officials showed no signs of backing down from their hawkish rhetoric, with Philadelphia Fed president Patrick Harker saying overnight that the central bank is not done with raising its short-term rate target amid very high levels of inflation.
Money markets are close to fully priced for 75 basis point rate hikes in both November and December.
“The dollar’s got the wind to its back, it’s got everything working for it,” said Chris Weston, head of research at Pepperstone. “It’s a magical currency at the moment.”
The greenback jumped as high as 150.43 yen for the first time since August 1990 before last trading up 0.16% at 150.38. The currency pair is extremely sensitive to changes in US 10-year yields, which pushed to a more than 14-year top of 4.272% in Tokyo trading.
The battered Japanese currency first weakened past the symbolic 150 level late Thursday afternoon in Tokyo, but strengthened sharply from an interim low of 150.09 per dollar to 149.63 within a minute.
Fresh threats of intervention made by Japanese policymakers have kept investors on high alert, although there has been no news of further action since the Ministry of Finance’s dollar-selling, yen-buying intervention last month.
Dollar rides surge in Treasury yields, yen treads near key 150 level
“(They) can no longer just rely on individual-part intervention to keep the yen from depreciating. You either have yield curve control lifted, or concerted action,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
The US dollar index, which tracks the currency against a basket of six major peers including the yen, British pound and euro, added 0.15% to 113.10.
Meanwhile, sterling slid 0.46% to $1.11875, bringing it close to Thursday’s low of $1.1172, the weakest level since Oct. 14, and erasing any trace of the brief rally to $1.1338 after Liz Truss announced her resignation as prime minister.
“I think that was a knee-jerk reaction to at least a temporary easing of UK political uncertainty,” said Carol Kong, currency strategist at Commonwealth bank of Australia (CBA).
“But the news that we heard only removed some, but not all of the political uncertainty in the UK economy, and we’ll still hear more on the fiscal policy front at the end of this month.”
Truss was brought down by an economic programme that sent shockwaves through markets and shattered the country’s reputation for financial stability.
The Conservative Party, which holds a big majority in parliament and need not call a nationwide election for another two years, will now elect a new leader by Oct. 28 - Britain’s fifth prime minister in six years.
The euro fell 0.22% to $0.97645, after tracking the move in sterling to an overnight high of $0.98455.
The Aussie fell 0.41% to $0.6257, while New Zealand’s kiwi sank by about the same margin to $0.5652.
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