Dollar Near Five-Year High

The dollar hovered near a five-year high against the yen. It was supported by a surge in US Treasury yields on rising bets for a Federal Reserve rate hike in March.

The dollar was trading at 116.115 yen, little changed from Wednesday, when it rallied back toward Tuesday’s high of 116.355, boosted by more hawkish Fed rhetoric and a strong US jobs report.

Expectations of faster policy tightening dragged down riskier assets. The British pound fell from a near two-month high, and cryptocurrencies plunged to multi-month lows. Fed officials said the “very tight” labor market in the United States might warrant raising rates sooner. Therefore, they may also reduce the central bank’s overall asset holdings to tame high inflation.

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

Earlier in the day, the ADP National Employment Report showed that private U.S. payrolls increased by more than double what economists polled by Reuters had predicted. This potentially raised expectations for Friday’s non-farm payrolls figures.

The US dollar index, which measures the currency against the yen and five other major peers, was roughly flat at 96.209 on Thursday.

Five-year Treasury yields, which are highly sensitive to interest rate expectations, have risen to nearly two-year highs.

Currencies

Despite an increasingly hawkish Fed, which signaled three quarter-point rate increases this year at its December policy meeting, the dollar index has stalled since hitting a 16-month high of 96.938 in late November. Trend and momentum dynamics continue to favor the USD. However, prices will need to breach the Q4 2021 highs in most cases to re-establish the uptrends.

The euro was trading at $1.1310, remaining in the middle of its trading range since mid-November. It fell to $1.1186 on November 24 for the first time since July 2020.

Sterling was trading at $1.3550, down from a nearly two-month high of $1.3599 after the Fed minutes.

On Wednesday, the Australian dollar fell to $0.7215 after reaching an intraday high of $0.7273.

Bitcoin has stabilized at around $43,600 after falling to a one-month low of $42.413.59 in the previous session. After losing to $3,410.22 overnight for the first time since mid-October, ether regained some ground and is now trading around $3,500.