Dollar Rise, Yen Falls to 1998 Lows

LONDON (Reuters) – The safe-haven dollar surged towards two-decade highs against rival currencies on Monday, boosted by fears of a global economic slowdown and bets for big interest rate hikes by the US Federal Reserve.

The yen was among a group of currencies that fell during the day, hitting its lowest level against the dollar since 1998, as the gap between Japanese and US benchmark yields widened after hot US inflation data on Friday. Read more

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The dollar index – which measures the greenback against six major peers – rose 0.6% against Friday’s close of 104.84, close to a two-decade peak of 105.01 hit in May. The last time was at 104.75.

Central banks’ efforts to curb hyperinflation will remain in focus this week.

The Federal Reserve and the Bank of England are expected to raise interest rates at their meetings and there is a chance that the Swiss National Bank will do the same.

The Bank of Japan (BoJ) has so far resisted pressure to tighten policy, weakening the country’s currency. The divergence in policy has caused the yen to fall more than 15% against the dollar since early March.

A Japanese government spokesperson said Monday that Tokyo is ready to “respond appropriately” if necessary. Read more

The yen fell as much as 0.6% on the day to 135.22 yen per dollar, its lowest level since 1998. It last settled on a broad scale at 134.38 yen per dollar.

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“Everything indicates that the BoJ believes that loose policy is still the right policy to pursue. I think inflation will have to accelerate a lot before the BoJ starts to worry,” said Francesca Fornasari, Head of Currency Solutions at Insight Investment.

Currency analysts at MUFG said in a note that overall developments point to further weakness in the near-term for the yen. “But market participants will be more wary of the risks of intervention and/or a hawkish shift in BOJ policy in the coming week,” they added.

The note added that downward pressure on the yen may encourage speculation of a return to yen weakness not seen since the Asian financial crisis in 1997, when it reached 140.00 – the last time Japan intervened directly to prop up the currency.

The Euro, the British Pound and the Swiss Franc fell to nearly four-week lows against the Dollar during the day.

The euro fell as much as 0.6% to $1.04520.

Sterling fell 1% to $1.21,920 after data showed the British economy unexpectedly contracted in April. Read more

The Swiss franc fell as much as 0.7% to 0.99440 francs per dollar.

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(Reporting by Ian Withers) Additional reporting by Alun John in Hong Kong Editing by Mark Potter and David Evans

Our criteria: Thomson Reuters Trust Principles.

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