Dollar hits five-year high vs yen as Fed rate bets lift U.S. yields

The U.S. dollar reached its strongest level in nearly five years against the Japanese yen on Tuesday, lifted by a jump in Treasury yields as traders bet on an early Federal Reserve interest rate hike despite surging COVID-19 cases.

The greenback rose as high as 115.815 yen for the first time since Jan. 11, 2017, as long-term Treasury yields leapt 12.5 basis points overnight to touch 1.6420% for the first time since Nov. 24.

Money markets have fully priced in a first U.S. rate increase by May, and two more by the end of 2022.

The dollar index, which measures the currency against the yen and five other major peers, held close to the one-week high of 96.328 reached on Monday.

The euro traded at $1.1302, lifting off the one-week low of $1.12795 from overnight.

Sterling slipped to $1.34685, falling back toward the overnight trough of $1.3431, a level not seen since Nov. 29.

The Australian dollar hovered close to a near two-week low of $0.7184 reached in the previous session.

For dollar-yen, “assuming that U.S. yields remain elevated, there is nothing on the charts to stop a rally to 118.00 in the coming weeks,” he said.