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Safe-haven yen gains against Aussie as risk sentiment sours -Breaking

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© Reuters. FILE PHOTO – This illustration, taken on January 6, 2020, shows the Saudi Rial, Yuan, Turkish Lira, and pound. REUTERS/Dado Ruvic/Illustration

Kevin Buckland

TOKYO (Reuters – Friday’s gains in the safe-haven yen versus riskier Australian dollars were a result of deteriorating risk sentiment due to renewed concerns about escalating inflation and aggressive Federal Reserve tightening.

While the dollar saw some relief from recent gains due to a slowing rally in U.S. Treasury Yields, it was still heading for its best week since February against a group of major peers.

The, often used as a proxy for risk appetite, fell to as low as 0.577% to 82.02yen. This was the lowest point in one month. Last, it dropped 0.32% to $0.72035.

The greenback dropped 0.15% to 113.915 Japanese yen. This was a one week low.

Wall Street was hit hard by a selloff during the closing hours, and Treasury yields fell from their multi-year peak. The reopening of the markets will see a 0.5% decline.

Market expectations of a tighter U.S. Federal Reserve have driven the rise in U.S. yields. Futures on Fed funds have priced in an increase in the rate of interest in March, and four more in 2022.

Two-day Federal Open Market Committee policy meeting starts Tuesday. Market participants will carefully analyze the statement of the FOMC regarding tightening timeline.

After touching an all-time high of 95.864 last Thursday, the – which measures currency against six competitors – was 0.033% higher at 95.795. The week is 0.65% higher than last week’s slide of 0.61%.

Euro fell 0.06% at $1.1303, which is the same as Thursday’s lowest level since Jan. 10.

Sterling dropped 0.05% and was $1.3586 at its lowest level since Jan. 11.

Many experts predict that dollar volatility will not stop rising as Fed tightens.

Westpac strategists wrote that currency “should continue tense into next week’s FOMC”, and added they would not be surprised to see the dollar index surpass its 2021 high of 96.938.

They wrote that while a lot of the USD is now priced in, they pointed out that a direct comparison between (the USD index) and yield spreads showed that it hasn’t fully priced in.

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