The dollar climbed to a fresh 40-year high against the yen on Thursday as a five-day oil rally revived inflation fears and lifted bets on a near-term Federal Reserve rate hike. The European Central Bank held rates steady but left the door open to a September increase.
The U.S. dollar hit a fresh 40-year high against the yen, driven by climbing oil prices that renewed inflation fears and pushed traders toward a near-term Federal Reserve move. The dollar index rose 0.32% to 101.47, with the euro down 0.35% at $1.137 — the greenback on track for its biggest daily gain in a month.
Energy markets drove the move. Brent crude touched $100 a barrel for the first time since May 26 after Yemen’s Houthis said they struck two Saudi oil tankers, raising the risk of a second bottleneck on global oil supplies alongside the near-shuttered Strait of Hormuz. U.S. crude jumped 5.41% to $91.51 a barrel, while Brent stood at $100.42, up 6.75% on the day.
Fed hike bets jump after jobless claims fall
Renewed U.S.-Iran strikes reversed oil prices and fanned inflation fears, and the U.S. economy is seen as more insulated from energy shocks than Europe or Japan. Markets now price a 37.9% chance of at least a 25-basis-point hike at next week’s Fed meeting, up from 11.8% a week ago. For September, those odds have climbed to 83.2% from 52.4%.
The labor data reinforced the case for tighter policy. Weekly initial jobless claims fell by 22,000 to 187,000, the largest decline in three months and well below the 212,000 economists polled by Reuters had expected.
Yen sinks as the Bank of Japan lags
The yen weakened 0.49% to 163.93 per dollar after touching 163.96, its softest level since November 1986, with the Bank of Japan expected to take a more deliberate approach to rate hikes than its peers. Markets price about 25 basis points of BOJ hikes this year, yet Japan’s two-year government bond yield hit a 31-year high on bets the bank could accelerate. The BOJ is still widely expected to hold rates at its July 31 meeting.
Japan’s finance minister repeated that the government was prepared to take decisive action on foreign exchange as needed, after yen-buying operations in April and May once the currency slipped past 160. On the euro side, the ECB kept interest rates unchanged while holding the door open to a September increase, and President Christine Lagarde said, according to Reuters, “the full effects of the energy shock have yet to play out”.
Sources: Reuters, Investing.com
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