Kevin Buckland

TOKYO (Reuters – The dollar continued to rally overnight into Asian trading hours Tuesday. It hit new two-decade highs against the yen on Tuesday as fears of persistent inflation pushed up U.S. bonds yields.

Also, the greenback edged up against sterling, euro and Swiss Franc. The Australian dollar also saw a slight increase, although the market is split over whether Australia’s central bank will either raise Australia’s key rate earlier in the day by quarter point, or choose for something higher.

Inflation fell to 0.15 percent at $0.7183, extending its decline from the $0.72825 peak reached last Friday.

On Tuesday, the dollar reached 132.305 Japanese yen – an all-time high of 0.17% – thanks to the rise in 3.05%, which was the highest level since April 2002. At 132.12, the currency pair traded 0.17 percent higher in recent weeks.

Contrary to this, Japanese yields have been pinned at zero by Bank of Japan’s yield control policy. Haruhiko Kuroda, the central bank governor, reiterated on Monday that he is committed to providing “powerful” financial stimulus.

Commonwealth Bank of Australia, (OTC) faults the weakness of the Japanese yen not only for yield differentials but also Japan’s dependence on oil imports. However, they don’t anticipate much further depreciation.

Carol Kong, CBA strategist and noted in a note that she believed JPY would benefit from safe-haven flows for as long Japan’s current accounts remain in surplus.

She said that she did not expect a rapid appreciation to the dollar in April and March, and that the dollar would consolidate at the top of its current 126-131Yen range.

Last week’s strong jobs data in the United States has fueled speculations about the possibility of higher price pressures for longer. This could potentially lead to more aggressive Federal Reserve actions.

The Fed will release more information on its rate-hiking strategy Friday, before the Fed policy decision next week, which is expected to see a half point increase.

Edward Moya (OANDA senior market analyst) wrote that Friday’s report on inflation will show that there is no sign of inflation easing, although the chances for a recession remain low.

Wall Street needs to see more inflation data after the one that follows before any person can be confident in making a decision on when or if the Fed will alter their tightening.

The, which is used to measure the currency’s performance against six other major currencies, ticked up by 0.04% at 102.51, adding 0.2% on Monday.

Before the European Central Bank rate setting meeting on Thursday on Thursday, the euro fell 0.09% to $1.0686. This was a result of traders who already have priced in several increases and the end bond-buying stimuli, but want more clarity about what the future holds.

Sterling was 0.04% less at $1.2523 The previous session saw Sterling rise 0.29% to $1.2523, after Prime Minister Boris Johnson won a no-confidence vote but was left weaker.

Dollar increased by 0.11% to 0.97125 Swiss Francs.