Kevin Buckland

TOKYO (Reuters – The dollar hovered at a 5-year high against the yen Thursday. It was supported by a jump in U.S. Treasury yields due to rising bets of a Federal Reserve Rate hike in March.

It was at 116.115 Japanese yen. This is little change from Wednesday’s close of trading. Tuesday’s 116.355 high saw it rally back, aided by Fed officials who spoke more strongly against hawkish sentiment and the strong U.S. job report.

Anticipation that faster policy tightening would be more rapid has affected riskier assets. With the British pound falling from an almost two-month high, and cryptocurrency plummeting toward multi-month lows,

Fed officials indicated that the U.S. labor market is “very tight”, and they might consider raising rates earlier. They also suggested that the central bank could reduce its overall assets to manage high inflation, a process known as quantitative tightening (QT). Minutes from their December 14-15 policy meeting revealed this.

In the wake of that, futures on the federal funds rate priced in a roughly 80% chance of a quarter-percentage-point Fed hike by its March meeting.

Earlier today, ADP National Employment reported that U.S. private payrolls grew by nearly twice the rate predicted by Reuters pollsters. It could increase expectations for non-farm payrolls data due Friday.

According to TD Securities, “The odds of a rate increase in March increasing and the threat from QT this year,” the USD should remain resilient,” a report said the strategists.

While we believe this trend should continue to be supported, we are concerned that a Fed which is very hawkish could result in some risk-market indigestion.

From Wednesday, the was at 96.209, where it had been flat. It recovered from intraday losses of as much as 0.44% after the minutes were released.

The five-year Treasury yields which are highly sensitive to the interest rate expectations of their borrowers, have risen to a nearly two-year peak.

The Fed has been becoming more hawkish in recent months and signalled three quarter point rate hikes for 2015 at its December policy meeting. However, dollar index gains have stagnated after hitting an 16-month high of 96.938 late November.

RBC’s strategist George Davis wrote that “trend and momentum dynamics continue favoring the USD” and pointed out the Australian dollar and sterling in particular.

As it held steady in the middle part of its trading range, euro was at $1.1310 On Nov. 24, it fell to $1.1186 for the first time since July 2020.

Sterling fell overnight to $1.3550 from its nearly 2-month peak of $1.3599 after the Fed minutes.

It fell to $0.7215 from its intraday peak of $0.7273 Wednesday.

Bitcoin stabilized around $43,600, after falling to an all-time low of $42.413.59 the previous session.

After falling to $3,410.22 overnight, Ether was able to trade at $3,500.