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Title: Dollar Climbs on Rate Hike Expectations; Sterling Weighed by Weak Growth Data

Jun 13, 2022 02:48AM ET

By: AnalysisiWatch

The US dollar rose in early European trading on Monday, particularly against the Japanese yen, as US inflation data pushed up Treasury bond yields at the start of a busy week for central banks.

At 2:50 a.m. ET (0650 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.4 percent higher at 104.430, its highest level in four weeks.

The dollar's strength was most evident against the Japanese yen: USD/JPY rose 0.3% to 134.79 after earlier climbing to 135.16, its highest level since October 1998.

Earlier, it had climbed to 135.16, its highest level since October 1998. Earlier on Friday, the US consumer price index for May rose to a new four-decade high of 8.6%. This raised the likelihood that the Federal Reserve will have to continue its series of 50 basis point rate hikes in the third quarter, possibly even opening the door for a larger 75 basis point rate move at Wednesday's monetary policy-setting meeting.

The yield on the benchmark U.S. 10-year bond rose to 3.2% early Monday after rising nearly 12 basis points on Friday, while the Bank of Japan confirmed Monday that it will buy Japanese government bonds on Tuesday to keep the benchmark 10-year yield close to its 0% target.

The BoJ meeting is on Friday and its decision to buy JGBs on Tuesday suggests that it is likely to stick to its ultra-loose monetary policy stance.

Elsewhere, EUR/USD fell 0.3% to 1.0486, continuing the weakness suffered after the European Central Bank meeting on Thursday, when the central bank confirmed it will end its long-term bond-buying program early next month and raise interest rates in July.

GBP/USD fell 0.4% to 1.2263, with sterling receiving little support from expectations that the Bank of England will raise interest rates again on Thursday after the British economy slowed again in April as industrial and manufacturing output fell for a second straight month.

Gross domestic product fell 0.3% in April, much weaker than the 0.1% increase expected, and rose just 0.2% in the three months to April, down from 0.8% in the previous quarter.

The risk-sensitive AUD/USD fell 0.4% to 0.7025, while USD/CNY rose 0.4% to 6.7346 after Beijing announced three rounds of mass testing on Sunday amid fresh cases of COVID-19.

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