HomeBusinessThe dollar is strong, the yen is wary of BOJ hawks

The dollar is strong, the yen is wary of BOJ hawks

By Wayne Cole

SYDNEY (Reuters) – The dollar looked to extend its bull run on Monday as high government bond yields and more cautious prospects for U.S. rate cuts boosted its attractiveness, although the risk of intervention had caused a pullback against the yen.

Yen rates were tense as Bank of Japan Governor Kazuo Ueda used a speech later Monday to signal a possible rate hike in December, partly due to the currency’s weakness.

Ueda will deliver a speech at 01:00 GMT, followed by a media conference at 0445-0515 GMT. It will be his first opportunity to speak directly about monetary policy since Donald Trump’s victory in the US presidential election on November 5.

Markets imply about a 55% chance of a quarter-point rate hike to 0.5% when the BOJ meets on December 19.

Japanese Finance Minister Katsunobu Kato warned the market on Friday of a possible intervention if the yen were to fall too far and fast, sending the dollar down 1.3% to 154.30 yen. Support is now at 153.86, with resistance at last week’s peak at 156.76.

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That pullback left the euro steady at $1.0530 for now, although that was still uncomfortably close to the recent one-year low of $1.0496.

Against a basket of currencies, the dollar held steady at 106.730 after hitting a yearly high of 107.07 on Friday. The index climbed 1.6% over the week, marking six weeks of gains in the past seven weeks.

The rally coincided with a wild swing in 10-year Treasury yields, which have risen 70 basis points since early October, leading to a 5.4% rise in the US dollar index.

RATES US EXCEPTIONALLY

“While a period of near-term consolidation appears likely, we have revised our forecasts for the dollar and now project a further appreciation of 5% by the end of 2025,” said Jonas Goltermann, deputy chief market economist at Capital Economics.

“That is based primarily on the view that Trump will continue with the core tariff policies he proposed during his campaign and that the US economy will continue to outperform its major peers.”

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Markets are eager to see who Trump will choose as Treasury Secretary, with Cantor Fitzgerald CEO Howard Lutnick and investor Scott Bessent the top candidates for the job.

Analysts generally assume that Trump’s touted tariff policies, reduced immigration and debt-financed tax cuts will be inflationary, limiting the scope for further interest rate cuts by the Federal Reserve.

Futures imply a 60% chance that the Fed will ease by a quarter point in December and only 77 basis points of cuts are priced in by the end of 2025, down from more than 100 a few weeks ago.

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