The US dollar climbed at a 12-year peak against the euro on Tuesday and hit a near eight-year high against the yen, fueling speculation that the Federal Reserve is about to raise interest rates mid-year. The greenback rally comes in reaction to the US jobs report made public last week that suggested the American economy is recovering.
Friday’s jobs data raised confidence that “the US economy is moving in the right direction, and expectations of a rate hike should continue until the Fed’s meeting next week, which means the yen could continue to weaken against the dollar,” as Toshihiko Matsuno, an expert from SMBC Friend Securities, told the media. The fact is regarded as a sign that the Federal Reserve Bank – one of the few central banks in the world to input higher exchange rates in case of economic strength – is about to raise rates as early as June. Dallas Fed President Richard Fisher came in a support of this scenario with a warning he issued on Monday against a potential recession risk if a rate hike is delayed further that mid-year.
The dollar fetched 121.68-73 yen on Tuesday afternoon (but even broke to 122.02 JPY=, the highest figure since July 2007) compared with 121.10-20 yen in New York and 120.87-89 yen in Tokyo in the previous day. The euro also dropped to a multi-year low on the dollar, partially in reaction to the European Central Bank’s decision to finally start its bond-buying stimulus program. The euro shifted from $1.0854 to $1.0797, and from 131.49 yen to 131.39 yen in the Japanese trade.
The dollar marked its most significant boost against other currencies in the Asia-Pacific time-zone. It climbed to 76.44 US cents from 76.96 cents via the Australian dollar and to 62.77 Indian rupees from 62.67 rupees. Other significant raises include the hike to 32.63 Thai baht from 32.57 baht, to 44.28 Philippine pesos from 44.27 and to 1,121.05 South Korean won from 1,111.82 won. Comparing the two strongest economies on the continent, China and Japan, it was noted the yuan rose to 19.43 yen from 19.31 yen.
A closer eye will be kept on Greece as finance experts from the country will meet with EU officials, the IMF and the European Central Bank on Wednesday in talks focused on extending Greece’s current bailout. The decline of the euro is closely related to Greek debt, as investors were left puzzled last month after Eurogroup chief Jeroen Dijsselbloem called Greece’s stall on the situation a “waste of time.”
The odds the Federal Reserve Bank will raise the interest rates in June, for the first time since 2006, are still uncertain. In his Monday speech the Dallas Fed President Fisher also advised that “Every time the Fed has tightened policy after achieving full employment, it has driven the economy into recession.” Currency strategists believe that if the dollar can stay above the 122 yen figure for a longer period of time it would be a clear sign of confidence in the greenback and might influence the Fed’s final call on raising borrowing costs.
Image Source: Bloomberg Business
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