Tom Westbrook

SINGAPORE, (Reuters) – The yen broke through the psychological 120 mark for the first time since 2016, after a hawkish speech by Jerome Powell, Federal Reserve Chair. This was in response to bets that higher U.S. rates would result and widen the gap between a dovish Bank of Japan policy.

In early Asia trade, the yen dropped 0.4% and briefly touched 120.08 dollars per dollar. The yen is currently down by 4% as flows from Japan have been attracted to the United States’ rising yields.

Lee Hardman, a MUFG currency analyst stated that the yen is being pushed to a deeper undervalued level against the U.S. dollars by the continuing policy divergence.

The dollar was strong elsewhere, and drove the euro down 0.2% – $1.0992

U.S. bonds, interest-rate futures and U.S. government bonds were subject to a second flogging overnight. Powell declared that policymakers should move fast and consider the possibility of rate hikes up to 50 basis points (bp).

Fed funds futures were able to predict a nearly 2/3 chance for a 50-bp increase in May. They also anticipate that the benchmark rate will rise from 0.5% now to 2.5% by 2023.

Benchmark 10-year yields increased 14 basis points and at 2.0914% the gap between anchored Japanese 10-year Japanese yields and benchmark 10-year yields was the largest in over 2 1/2 years. [US/][JP/]

These actions have given broad support to the dollar in other places, and nerves regarding the increasing conflict in Ukraine that is raising oil prices are causing them to rise back towards their highs of the early months. [O/R]

Also, the Australian dollar was at 0.7386 was softer than that of $0.6873.

It rose 0.2%, to 98.700. Sterling declined 0.2%, to $1.3144

The offshore currency was 6.3739, down from the recent highs, but still in an upward trend as investors wait for monetary easing. [CNY/]

Qi Gao, Scotiabank strategist, stated that although the Chinese central bank kept the 1-year and 5-year prime rates the same… Monday, they still expect (People’s Bank of China to) lower the requirement for the reserve ratio by 50 basis points again as soon as Q1 2022.” We maintain our short spot position.”

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Exchange bid prices starting at 0106 GMT

Description U.S. Close RIC Pct Change Pct High Low Bid

Previous change

Session

Euro/Dollar

$1.0992 $1.1016 -0.21% +0.00% +1.1026 +1.0981

Dollar/Yen

119.8800 119.4850 +0.32% +0.00% +120.0350 +119.4600

Euro/Yen

131.78 131.59 +0.14% +0.00% +131.9300 +131.6200

Dollar/Swiss

0.9354 0.9337 +0.27% +0.00% +0.9362 +0.9335

Sterling/Dollar

1.3143 1.3169 -0.18% +0.00% +1.3172 +1.3133

Dollar/Canadian

1.2600 1.2597 +0.02% +0.00% +1.2603 +1.2589

Aussie/Dollar

0.7387 0.7400 -0.18% +0.00% +0.7402 +0.7377

NZ

Dollar/Dollar 0.6873 0.6886 -0.17% +0.00% +0.6886 +0.6864

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