Dollar Reached the Highest Level Against the Yen

It was a great day for the U.S. dollar. It is worth mentioning that, the currency of the biggest economy of the world held the upper hand against low-yielding currencies on Wednesday. People should take into account that, the dollar reached the highest point against the yen in five months as U.S. bond yields jumped on the prospects of further economic recovery as well as a possible acceleration in inflation.

Interestingly, the dollar’s index against six other major currencies soared back from a three-week low of 90.117 hit on Tuesday to last stand at 90.665.

It is worth noting that, U.S. bond yields helped to boost the dollar. Notably, the 10-year yield reached as high as 1.333% from around 1.20% at the end of last week.

Importantly, concerns about the energy prices along with the prospect of a big U.S. fiscal stimulus affected yields. Moreover, global recovery is also entering a more solid stage thanks to vaccines. This factor also influenced the situation.

As a reminder, the Japanese yen which is sensitive to U.S. yields reacted the most with the dollar jumping to 106.225 yen. Importantly, its highest since September, before retreating to 105.91 yen. Most likely, the dollar’s downturn is over. Interestingly,  at the start of the year, speculators were betting on a fall in the dollar below 100 yen. However, they seem to have abandoned such a view at the moment.

Dollar and contributing factors

Interestingly, a sign of dwindling bets on the dollar’s fall against the yen is apparent in the options market. In that market, short-term dollar call options, or bet’s on the U.S. currency, have become more expensive than the U.S. currency puts, bets against the currency.

People should take into account that, the one-week risk reversal spread is now in favor of U.S. currency calls for the first time in almost five years.

Let’s have a look at the euro. Interestingly, the euro slipped slightly to $1.2085 though its fall was less pronounced. Thanks to its gains earlier on Tuesday following strong German economic sentiment data.

Moreover, the British pound held firm at $1.3895. As a reminder, the pound reached its highest level since April 2018 on Tuesday. Also, against the euro, the pound traded at its highest level since early May at 87.02 pence per euro.

Importantly, the Australian dollar stood at $0.7750. It was slightly lower but still not far from Tuesday’s one-month high of $0.7805.