News Column

Dollar firm above 102 yen amid speculation about early U.S. rate hike

June 18, 2014

Mie Sakamoto

The U.S. dollar stayed firm above the 102 yen line Wednesday in Tokyo, supported by speculation that the U.S. central bank could raise its key interest rate sooner than previously thought after the release of higher-than-expected inflation data.

At 5 p.m., the dollar fetched 102.22-24 yen compared with 102.10-20 yen in New York and 102.03-04 yen in Tokyo at 5 p.m. Tuesday. It moved between 102.12 yen and 102.31 yen during the day, changing hands most frequently at 102.16 yen.

The euro was quoted at $1.3547-3548 and 138.48-52 yen against $1.3542-3552 and 138.32-42 yen in New York and $1.3560-3561 and 138.36-40 yen in Tokyo late Tuesday afternoon.

Inheriting the trend overnight, the dollar kept its strength against the yen in Tokyo after the U.S. government said Tuesday consumer prices rose 0.4 percent in May from the previous month, higher than market expectations and the biggest increase since February 2013.

The data helped raise U.S. interest rates, accompanied with speculation that the Federal Reserve could move to start raising its interest rate earlier than expected, dealers said. The Fed will conclude its two-day policy meeting later in the day.

"The Fed could present an aggressive economic view following the CPI data," considering there is a hawk among the new members of the Federal Open Market Committee, said Yuji Saito, executive director of foreign exchange at Credit Agricole Corporate & Investment Bank in Tokyo.

The market widely expects the Fed -- which plans to announce its economic projections covering economic growth and inflation after the meeting -- will opt to scale down its asset-buying stimulus.

The market is also paying attention to post-FOMC remarks by Fed chief Janet Yellen, dealers said.

"The Fed is likely to raise its inflation outlook," thus enhancing the prospects for a rate hike at an early date and prompting dollar buying, said Shinichiro Kadota, foreign exchange strategist at Barclays Bank.

Dollar buying in Tokyo was also fueled by expectations for global economic improvement, with the dollar briefly rising to the day's high of 102.31 yen in the afternoon, dealers said.

But a further rise in the U.S. currency above the 102.50 yen mark was capped by wariness over escalating tension in Iraq that has sent crude oil prices higher, Credit Agricole's Saito said.

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Source: Japan Economic Newswire

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