Dollar Up as Investors Expect More Interest Rate Hikes

The dollar was up on Tuesday morning in Asia over expectations that the U.S. Federal Reserve will deliver more interest rate hikes. The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged up 0.16% to 102.6 by 12:28 PM ET (4:28 AM GMT). The USD/JPY pair jumped 0.58% to 132.63. The dollar pushed as high as 132.305 yen on Tuesday – a level not seen since April 2002 as the 10-year Treasury yield rose to 3.05% for the first time in nearly four weeks. As the yen’s sharp decline dented consumers’ confidence, Bank of Japan Governor Haruhiko Kuroda reiterated an unwavering commitment to “powerful” monetary stimulus on Monday. “We consider JPY will continue to benefit from safe-haven flows so long as Japan’s current account remains in surplus,” CBA strategist Carol Kong said in a note. “As such, we do not anticipate a repeat of the rapid USD/JPY appreciation seen in March and April,” she added. The AUD/USD pair gained 0.51% to 0.7288 ahead of the policy decision from the Reserve Bank of Australia (RBA), which is due later in the day. The RBA is expected to deliver back-to-back interest rate hikes for the first time in 12 years. The NZD/USD pair inched up 0.04% to 0.6492. The USD/CNY pair edged up 0.14% to 6.6630, while the GBP/USD pair edged down 0.13% to 1.2514. The euro slipped 0.09% to $1.0686 ahead of the European Central Bank (ECB)‘s policy decision on Thursday. Investors have priced in several hikes from the ECB. With a strong U.S. jobs report last Friday signaling more interest hikes, investors now await the U.S. consumer price index (CPI) for clues on the interest rate hike path, which is due this Friday. “Friday’s inflation report will likely show that inflation is not easing just yet, but that the odds of a recession are still low,” OANDA senior market analyst Edward Moya said in a note. “Wall Street will need to wait for a couple more inflation reports after this one before anyone can confidently make a call as to when the Fed may alter their tightening course.”