Yen slips to five-year low as rest of world hikes By Reuters

©Reuters. FILE PHOTO: A Japanese yen note is seen in this illustrative photo taken on June 1, 2017. REUTERS/Thomas White/Illustration

By Alun John

HONG KONG (Reuters) – The dollar hit a five-year high against the yen on Monday as traders braced for a US Federal Reserve rate hike while expecting the Bank of Japan to remain dovish.

Commodities and commodity currencies fell on hopes of progress in Russia-Ukraine peace talks. Cryptocurrencies surged after Tesla (NASDAQ:) CEO Elon Musk said on Twitter (NYSE:) that he owns and will not sell Ether, Bitcoin and Dogecoin.

The dollar touched 117.88 yen in Asia trading, its strongest since January 2017, at the start of a busy week that included central bank meetings in the United States, Britain and Japan.

“The Ukraine conflict should not prevent the BoE and Fed from raising rates in the coming week while the BOJ is on hold,” said analysts at Japan’s MUFG Bank.

“If there is no significant de-escalation in the Ukraine conflict, the dollar should remain stronger.”

Futures are pricing in between six and seven US interest rate hikes of 25 basis points each this year, and six in the UK as the war in Ukraine increases global inflationary pressures.

In contrast, the BOJ will remain dovish at its meeting this week as policymakers seek to boost the country’s sluggish economic recovery from the pandemic.

A glimmer of hope for progress towards peace appeared after US Assistant Secretary of State Wendy Sherman said Russia had shown signs it might be ready for substantive negotiations on Ukraine, taking the edge off commodity currencies on Monday but the pound Sterling and the Euro remain under pressure.

The Australian dollar was last down 0.5% to $0.7256 and down 0.2% to $0.6791. The euro was parked at $1.0915 while sterling slipped 0.2% to $1.3013, a 16-month low.

“With the UK more exposed than the US to the Russian supply shock, risks lie in a BoE disappointment and a weaker sterling to $1.2894, in our view,” analysts at Commonwealth Bank of Australia (OTC:) said.

It crawled up to 99,214.

Pressure on bonds was unrelenting and the two-year Treasury yield, which moves with near-term interest rate expectations, hit a 2-1/2-year high of 1.8090% and benchmark 10-year rates rose to a one-month high of 2.06%.

Ethereum has rallied, rising 2% to $38,560, while Ether was last up 2.2% to $2,573 after traders got a bullish signal from a series of tweets from Tesla’s Musk about high inflation.

“It’s generally better to own physical things like a house or stocks in companies that you think make good products than dollars when inflation is high,” Musk said.

“I still own Bitcoin, Ethereum or Doge and will not sell them.”

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Chris Barrese

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