Yen wallows as Omicron fears subside and rate hikes loom

SYDNEY — The yen was pinned near a

five-year low on the dollar on Wednesday and nursing losses on

other crosses as traders wagered the Bank of Japan would lag a

looming wave of global policy tightening as inflation gallops

ahead around the world.

The yen tumbled through support around 115.50 per

dollar on Tuesday to hit the five-year trough at 116.35. It last

sat at 116.15 per dollar. It also dropped through its 200-day

moving average to a two-month low of 131.45 per euro

and was hovering at 131.06 per euro early in the Asia session.

The yen fell to a more than six-year low against the Swiss

franc and a seven-week trough on the Aussie.

“Sharply higher COVID-19 case numbers in the U.S. (and a

little higher in China) appear to be primarily boosting

supply-chain concerns and fears of higher inflation in the U.S.,

rather than boosting growth concerns,” said Nomura economist

Andrew Ticehurst.

This has led to a sharp jump in U.S. Treasury yields in the

first trading days of the year and the widened gap on Japanese

yields – anchored by the central bank – has hurt the yen.

The euro hovered near a two-week low against the

dollar at $1.1279. The risk-sensitive Australian and New Zealand

dollars also resumed an attempt to rally as fears of Omicron

derailing the world’s recovery subsided.

The kiwi last bought $0.6819 and the Aussie

$0.7236. Both remain shy of resistance around $0.6857

and $0.7270 respectively. The U.S. dollar index was

rangebound at 96.313.

Sterling, meanwhile, has rallied 2.7% in a dozen trading

days since Dec. 20 as traders also reckon surging Omicron cases

in Britain won’t deter the Bank of England from lifting rates.

The pound last bought $1.3527.

Minutes from the Federal Reserve’s December meeting, due to

be published at 1900 GMT, could underscore U.S. policymakers’

newfound sensitivity to inflation and their readiness to act.

Partial U.S. labor data on Wednesday and non-farm payrolls on

Friday will also be watched for a guide to the trajectory.

Fed Funds futures show traders see rates lifting off

by May. Analysts at Standard Chartered now expect 25-basis point

hikes in March and June rather than one hike in September.

U.S. two-year and five-year yields

stand near pandemic highs and benchmark 10-year yields

are up more than 14 basis points this week.

Against that leans some element of caution as markets remain

thinned by holidays.

“Despite the explosive rally in USD/JPY, I still can’t get

excited about the idea of a stronger USD right now,” said Brent

Donnelly, trader and President at analytics firm Spectra

Markets.

“The rates move certainly has grabbed everyone’s attention

but it’s hard to know how much to read into a move on the first

trading day of the year. The big question remains: Can the Fed

hike more than a few times without breaking everything?”

========================================================

Currency bid prices at 0059 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.1277 $1.1286 -0.08% -0.80% +1.1286 +1.1277

Dollar/Yen 116.2050 116.1450 +0.08% +1.06% +116.2350 +116.1200

Euro/Yen

Dollar/Swiss 0.9168 0.9167 -0.03% +0.47% +0.9168 +0.9160

Sterling/Dollar 1.3529 1.3527 +0.03% +0.05% +1.3535 +1.3528

Dollar/Canadian 1.2701 1.2706 -0.07% +0.42% +1.2706 +1.2697

Aussie/Dollar 0.7238 0.7239 +0.01% -0.41% +0.7244 +0.7233

NZ 0.6812 0.6809 +0.10% -0.42% +0.6820 +0.6802

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; editing by Richard Pullin)