Rampant dollar hits new 24 year peak on the yen

The dollar climbed to a 24-year high on the yen on Monday after Japan‘s ruling conservative coalition’s strong election showing indicated no change to loose monetary policies, and global growth fears helped the safe-haven dollar more broadly.

The dollar climbed to as high as 137.28 yen in morning trading, its highest since late 1998. It then pared those gains slightly and was last up 0.6% at 136.93.

The dollar was also firm on the euro, which dropped 0.38% to $1.0144 heading back towards a 20-year intraday low hit Friday, leaving the dollar index up 0.4% at 107.3.

“The dollar is strengthening across the board but dollar-yen is leading the move,” said Rodrigo Catril currency strategist at National Australia Bank

He said investors‘ move away from riskier assets had been supporting the dollar overall, while, in Japan, Sunday’s election result indicating there would no change to the countrys expansionary economic policy would weigh on the yen.

The Bank of Japan‘s (BOJ) policy of keeping Japanese rates pinned down to support the economy, combined with rising U.S. interest rates has been a major factor in the Japanese currency’s recent weakness.

BOJ Governor Haruhiko Kuroda said earlier in the day the central bank “wont hesitate to take additional monetary easing steps as necessary”.

High inflation – by Japanese standards if not global ones – had led to some public pressure on policy makers to change course, but Catril said this pressure had been reduced by the coalition led by Prime Minister Fumio Kishida‘s Liberal Democratic Party (LDP) increasing its upper house seats in Sunday’s election.

The U.S. 10 year yield was last at 3.087% having rallied last week.

Growth fears

Away from Japan, fears about the global growth outlook, particularly as central banks look to curb runaway inflation, were pushing flows to safe havens.

“The (dollar) could remain expensive until the risks around elevated global inflation, European energy security and Chinas growth outlook have been resolved,” said analysts at Barclays in a note to clients.

“This weeks U.S. CPI will be an important piece of the puzzle as the Fed decides between 50 basis points and 75 basis points ahead of the July meeting.”

U.S. CPI data is due Wednesday and markets would likely interpret a high reading as a sign the U.S. Federal Reserve would need to raise rates even more aggressively to combat inflation.

With inflation rampant across much of the world, rate hikes are also expected this week from the Reserve Bank of New Zealand on Tuesday and the Bank of Canada on Thursday. [NZ/INT][CA/INT]

Energy concerns meant the euro was struggling against more than just the dollar and in early trade Monday was at 0.85 British pence and 139 yen, just above last Fridays levels when it hit its lowest since late May against both currencies.

In the latest worry for the European economy, the biggest single pipeline carrying Russian gas to Germany starts annual maintenance on Monday. Flows are expected to stop for 10 days, but governments, markets and companies fear the shut-down might be extended due to war in Ukraine.

The other main economic event this week is Chinese second-quarter GDP on Friday, with investors watching for signs of how hard the economy was hit by COVID-19 lockdowns.

Britain will publish its second-quarter GDP data on Wednesday, but attention is more focused on the ruling Conservative partys choice of their next leader and prime minister.

Sterling was down 0.38% against the stronger dollar at $1.1986 on Monday morning, having finished a volatile time last week not far from where it started.