The U.S. dollar increased against the Japanese yen on Tuesday, beating a five-year high. It resulted from investors considering Omicron to be less harmful.
Investors believe that the new strain will not likely affect the global economy negatively. They also think it won’t delay the Fed’s expected rate hikes.
This year, an advancement in U.S. Treasury yields on anticipations for a Fed rate hike backed the greenback. Those expecting at least a 25-basis-point hike at the central bank’s policy-setting committee meeting ended 60%. Yields on U.S. 5-year notes, sensitive to rate hike expectations, gained the highest level after 2020.
Yields on U.S. 2-year notes edged lower after reaching a 23-month high on Monday.
The dollar index increased 0.07%, with the euro down 0.06% to $1.1289.
The Japanese yen weakened 0.66% versus the greenback at 116.09 per dollar. It happened after the dollar reached a high of 116.35 against the yen. It ranked at its highest level since the beginning of January 2017.
Overview of the current changes
Senior market analyst at Western Union Business Solutions, Joe Manimbo, said that the market is just waiting for higher rates from the Fed. He explained that the critical catalyst pushed the dollar/yen pair higher.
He said that the main challenge here is Omicron which looks pretty unpredictable. Still, the market’s take so far is that it doesn’t look like it will deal an effective blow to the recovery. He assumed that it just raises the spotlight on central banks and how they push interest rates higher.
Neel Kashkari, Minneapolis Federal Reserve Bank President, said he expects the U.S. central bank to raise interest rates two times in 2022. He added that it would address persistently high inflation, switching his view that rates will have to stay at zero until 2024.