Dollar Stays Sound While Yen Drops

The dollar traded close to a two 1/2-week high to significant rivals on Monday as rising inflation in the United States supported the case for earlier Federal Reserve interest rate hikes ahead of a policy settlement on Tuesday.

The dollar approached one 1/2-week top to the yen. The safe-haven Japanese currency declined following a strong showing for the ruling party in weekend elections raised doubts regarding the new prime minister’s popularity.

The dollar index, which gauges the U.S. currency versus six rivals, was little modified at 94.161, floating close to Friday’s peak of 94.302, a level not witnessed after Oct. 13.

The U.S. currency traded 0.16% stronger at 114.205 yen, touching as high as 114.315. Over 114.41 would be the strongest following Oct. 20, when it hit a nearly four-year high of 114.695.

Japanese Prime Minister Fumio Kishida’s ruling Liberal Democratic Party defied expectations. They held its majority in Sunday’s parliamentary election, setting his position in a fractious party and allowing him to ramp up stimulus.

Futures Are Contracting

A 4.4% increase in the government’s index of core personal consumption expenses fixed market expectations for a rates lift-off around the middle of next year.

Futures on the fed funds rate follow short-term rate expectations. Hence following the data they assessed a 90% chance of quarter-point tightening by June 2022, factoring in another rate hike by December.

Those bets could be moved this Friday again, with the closely observed monthly payrolls report release.

Westpac strategists wrote in a note to clients that the dollar seems well-positioned. It should be able to build on gains within a possibly decisive week of event risk. This foretells a “brisk” $15 billion per month tapering asset purchases. Moreover, jobs figure is at least as strong as consensus.

Any declines in the dollar index to the mid-93 level are a buying chance, they stated.

On Tuesday, the Reserve Bank of Australia also determines with markets challenging the central bank’s claim that rates won’t increase until 2024.

The Aussie dollar slid 0.13% to $0.7511, extending its retreat from an almost four-month high of $0.75555 touched last week.

The Bank of England published its policy decision on Thursday. Markets considered whether the monetary authority would increase rates at the meeting.

Sterling mainly was even at $1.3680 and earlier fell to $1.3663 for the first time since mid-October.

Meantime, the euro was flat at $1.15605, staying near to Friday’s low of $1.1535, the lowest after Oct. 13.