Dollar reigns with support of higher yields

SINGAPORE: The Japanese yen traded around five-month lows on Monday against a dollar underpinned by rising US yields as thin year-end liquidity kept most currencies in tight ranges.

The yen was changing hands at 157.82 with only the risk of Japanese intervention preventing another test of the 160 level last seen in July.The dollar index measure against major rivals was flat at 107.99.

The euro stood at $1.0429, not far from recent troughs and in a holding pattern in holiday trading. The currency is heading for a calendar-year drop of roughly 5.5 per cent on the dollar.Rising US Treasury yields have been a tailwind for the dollar, with the benchmark 10-year note hitting a more than seven-month high last week. The yield hovered close to that mark on Monday, at 4.625 per cent.

“Despite paid forecasters almost universally calling for a weaker US dollar in 2024, the greenback looks set to close the year higher against all major currencies with the buck reigning supreme,” said Chris Weston, head of research at Australian online broker Pepperstone.

For the month, the dollar index is up 2.3 per cent, bringing year-to-date gains to 6.6 per cent.It has gained in each of the last three months, helped by expectations President-elect Donald Trump’s policies of looser regulation, tax cuts, tariff hikes and tighter immigration will be both pro-growth and inflationary and keep U.S. yields elevated.

The dollar has gained 10 yen since Dec 3, with much of the decline in the Japanese currency coming after the Federal Reserve’s Dec 18 message of caution around future rate cuts.That view has weighed heavily on the yen, which hit its weakest level since July 17 last week at 158.09 per dollar and has shed 10.6 per cent so far this year.

It came off those lows on Friday after a summary of opinions from the Bank of Japan’s December policy meeting showed some policymakers gaining confidence in an imminent rate increase, while the Japanese central bank also cut its monthly bond purchases.

Still, Japanese yields remain notably low, and recent comments have sown doubts about the BOJ’s commitment to lift rates. The BOJ held interest rates steady at 0.25 per cent at this month’s meeting, and governor Kazuo Ueda said the central bank was scrutinising more data on next year’s wage momentum and clarity on the incoming US administration’s economic policies.

A Reuters poll taken earlier this month showed the BOJ could raise rates to 0.5 per cent by end-March, and interest rates markets are pricing in only a 42 per cent chance of a rate rise in January.

Traders are on watch for any potential intervention by Japanese officials to shore up the currency if it continues to weaken, as they have done multiple times this year.Japan Finance Minister Katsunobu Kato on Friday reiterated concerns over a sliding yen, repeating his warning to take action against excessive currency moves.Pepperstone’s Weston said dollar buyers continued to dominate trading in the dollar-yen pair.