TOKYO- The dollar climbed close to a 24-year peak against the yen on Wednesday amid a jump in US yields after hotter-than-expected inflation boosted bets for even more aggressive monetary tightening by the Federal Reserve next week.
The dollar rose as high as 144.965 yen in the Asian session, taking it close to last Wednesday’s high of 144.99, a level not seen since August 1998, before last trading little changed at 144.56.
Overnight, the currency pair, which is extremely sensitive to rate differentials, surged 1.26 percent as 10-year Treasury yields climbed to a three-month high following an unexpected rise in the US consumer price index (CPI) for August. (Full Story)
“This has really shattered the illusion … that inflation had peaked and was coming down,” Ray Attrill, head of currency strategy at National Australia Bank, said in a podcast. “Hence markets have decided that next week’s Fed decision is not between 50 and 75 (basis point increase), it’s now between 75 and 100.”
Money markets currently price 37 percent odds for a full percentage-point hike on Sept. 21, versus a 63 percent probability of another 75 basis point move.
Nomura’s economists also said they now believe a 100 basis-point rate hike is the most likely outcome.
