US Dollar Regulates as Japanese Yen Hangs Close to Five-Year Low Points

US Dollar Remains a Safe-Haven

The US dollar had slid a little sliding off in the opening hours of the European session on Monday, but it still maintained up to five-years high against the Japanese yen. Investors and the entire global financial markets gear up for a relatively busy week with a number of central bank meetings in the offing.

USD/JPY price chart. Source TradingView

When the uncertainties in the ongoing war between Russia and Ukraine triggered a sell-off in the equity market on Friday, they had a rebound on Monday while commodity prices returned downwards. Market analysts connect the improvement in risk appetite to the news of Russian and Ukrainian diplomats giving clues to a measure of progress in their peace negotiations.

Equity and Money Markets React

Money markets were equally driven by high speculations that the US Federal Reserve was going to raise interest rates during its meeting this week which will end on Wednesday. Investors were reported to be pricing in a 93% possibility that there will be just a 25 basis points increase in the interest rates.

The Federal Reserve Chair, Jerome Powell, flagged the possibility of multiple interest rates in 2022 in the past week.

The US dollar index rose in the course of the Asian session as it came close to a 22-months high while the sensitive near-term US Treasury bond yield rose. The Treasury bond yield, however, later edged lower when European markets opened for business. Within the first few hours of opening, the US dollar index already went down by 0.1% at 98.886.

RBC’s Chief Currency Strategist, Adam Cole, said that everyone knows at this point that the Federal Reserve is very fixated on inflation and resolving it, so there are expectations that Powell would keep weighing that concern above the conflict going on in Ukraine.

The US dollar got to a five-year high against the Japanese yen in overnight trading at 117.88 as investors placed bets that the Bank of Japan, which is scheduled to meet on Friday, would continue having a dovish position in spite of increasing inflation pressures.

Strategists at ING FX wrote in their client note that the USD/JPY currency pair is continuing to get higher as it is aided by the twin factors of the US bond yield and the imbalance in Japan’s trade created by the rise in crude oil prices.

The British pound, on the other hand, was struggling at a 16-months low point as it traded flat at $1.30415, while Thursday’s Bank of England’s meeting is in view.