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Dollar pushes towards fresh 24-year peak versus yen after U.S. CPI shock

Japanese yen and U.S. dollar banknotes have emerged with a forex rate graph in this illustration picture taken June 16, 2022. REUTERS/Florence Lo/Illustration

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TOKYO, Sept 14 (Reuters) – The dollar climbed near a 24-year peak contrary to the yen on Wednesday amid a jump in U.S. yields after hotter-than-expected inflation boosted bets for a lot more aggressive monetary tightening by the Federal Reserve in a few days.

The dollar rose as high as 144.965 yen in the Asian session, taking it near to the most of 144.99 hit yesterday, an even not seen since August 1998. It last traded 0.15% lower at 144.41.

Overnight, the currency pair, that is extremely sensitive to rate differentials, surged 1.26% as 10-year Treasury yields climbed to a three-month high following an urgent rise in the U.S. consumer price index (CPI) for August. read more

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The yield on two-year Treasury notes , which typically reflects interest expectations, peaked at 3.804% on Wednesday, the best since 2007. The 10-year yields last stood at 3.4312%.

“It has really shattered the illusion … that inflation had peaked and was decreasing,” Ray Attrill, head of currency strategy at National Australia Bank, said in a podcast. “Hence markets are determined that next week’s Fed decision isn’t between 50 and 75 (basis point increase), it’s now between 75 and 100.”

Financial markets will have fully priced within an interest hike of at the very least 75 bps towards the end of the FOMC’s policy meeting in a few days, with a 38% possibility of a super-sized, full-percentage-point increase.

Each day earlier, the likelihood of a 100 bps hike was zero.

Nomura’s economists said they now believe a 100 bps rate hike may be the probably outcome. read more

“Markets underappreciate precisely how entrenched U.S. inflation is becoming and the magnitude of response that may be required from the Fed to dislodge it,” they wrote in an email.

The dollar index , which measures the currency against six major peers like the yen, euro and sterling, was little changed at 109.77, after surging 1.5% overnight, its biggest one-day percentage gain since March 2020.

The euro was up 0.19% to $0.9987, while Sterling gained 0.15% to $1.15115, following a 1.61% plunge overnight.

“Its very difficult to bet against a solid U.S. dollar at this time, that is still not seeing any signs of softness. And when expectations of continued aggressive hiking within the last quarter of the entire year continues, that could prolong the trend of dollar strength,” said Jeff Ng, a senior currency analyst at MUFG Bank.

The risk-sensitive Aussie extended its losses and slid 0.1% to $0.67265, following a precipitous 2.26% slide overnight.

Leading cryptocurrency bitcoin last rose 0.86% to $20,351.

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Reporting by Kevin Buckland; Editing by Kenneth Maxwell and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.

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