TOKYO, May 25 (Reuters) - The dollar marched to a two-month
high versus the yen on Monday and carved out fresh ground
against other major currencies after stronger-than-expected
underlying U.S. inflation supported the Federal Reserve's case
for a rate hike later this year.
The U.S. currency traded near a two-month high of 121.78 yen
after jumping from a low of 120.64 on Friday, helped by a
rise in U.S. Treasury yields triggered by the CPI data.
A move above 122.04 would take the greenback to an
eight-year peak against the yen.
"Whether the dollar can breach the 122.04 yen threshold
depends on upcoming U.S. data. While a June rate hike is no
longer a likelihood, upbeat indicators that would back up
Friday's CPI numbers will fan hopes that the Fed will provide
hints at the June meeting on when it might hike rates," said
Junichi Ishikawa, market analyst at IG Securities in Tokyo.
Data on Friday showed core U.S. CPI increased 0.3 percent in
April amid rising shelter and medical care costs. It was the
largest rise in the core CPI since January 2013 and followed a
0.2 percent gain in March.
The euro was down 0.2 percent at $1.0994, having
touched a one-month low of $1.0964 earlier in the session.
The common currency reached a three-month peak of $1.1468 as
recently as May 15, along with a surge in euro zone bond yields
and lessened pessimism towards the European economy.
But it has since sank on factors including prospects of more
easing by the European Central Bank, persisting Greek debt woes
and revived demand for the dollar.
The U.S. economy's recovery has not been as robust as
expected, dashing prospects held by the markets earlier in the
year for the Fed to raise rates in June and prompting investors
to push back their expectations to September or later.
Nevertheless, bits and pieces of upbeat data released this
month have shown that the U.S. economy still stands a head above
those of other developed economies such as the euro zone and
Japan, still deeply committed to easy monetary policies.
"The flow is shifting back in favour of the dollar, hurt
recently by spotty economic data and receding likelihood of an
early rate hike. Comments by policymakers has also helped," said
Koji Fukaya, president of FPG Securities in Tokyo.
"A June hike had gone out the window with sentiment for
tightening in September and even later receding at one point,
but such pessimism has ebbed," he said.
Federal Reserve Chair Janet Yellen on Friday said she
expected the central bank to raise rates this year as the U.S.
economy was on course to bounce back from a sluggish first
quarter and as headwinds at home and abroad begin to wane.
Amid reminders that the Fed is still most likely to raise
rates ahead of its G7 peers, the dollar index against a basket
of other major currencies hovered close to a one-month high of
96.446.
The pound was little changed at $1.5480 after
shedding more than one percent overnight against the bullish
dollar. The Australian dollar, which also suffered big losses
overnight, traded near a three-week low of $0.7804.
Trading is expected to be subdued, if not choppy, through
the rest of the session with London, Frankfurt and New York
markets closed for holidays.
(Editing by Jacqueline Wong & Kim Coghill)
Reuters by Shinichi Saoshiro
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