US Dollar rallies to fresh one-year high

The US Dollar (USD) climbed to its highest level in over a year against the Japanese yen on Monday, continuing to draw support from a scaling back of expectations for U.S. Federal Reserve interest rate cuts next year.

Japanese Finance Minister Shunichi Suzuki said the government would keep monitoring the currency market and respond appropriately. The comments had little immediate impact on the yen, which is down almost 14% against the dollar this year.

Sterling meanwhile inched higher after a reshuffle of key posts in the government by British Prime Minister Rishi Sunak.

And the overall tone in global currency markets was generally subdued with traders waiting for latest U.S. inflation numbers on Tuesday to make up their minds on whether rate cuts are likely next year.

“We’re in this pause where the dollar has peaked and the U.S. economy is slowing but people are going to wait for confirmation,” said Societe Generale strategist Kit Juckes.

“Given the move in U.S. Treasuries of course the yen is not rallying yet,” he said, referring to U.S. bond yields.

The dollar on Monday rose to 151.88 yen, its highest level since October 2022. It was last up 0.15%, having last week rallied around 1.4% in the biggest weekly jump against the yen in three months.

Fed policymakers, including Chair Jerome Powell, last week suggested the battle against inflation may not be over yet, prompting a scaling back of market rate cut bets that pushed up short-dated Treasury yields and supported the greenback.

The dollar index, measuring the greenback’s value against other major currencies, was a touch firmer at around 150.80 but holding on to most of last week’s gains.

The market showed little reaction to news late on Friday that Moody’s cut the outlook for U.S. credit to negative from stable.

Data out of Japan on Monday, meanwhile, showed wholesale inflation slowed below 1% for the first time in just over 2-1/2-years, suggesting cost pressures that had been driving up prices were starting to fade and giving little support to the yen.

Still, markets remained alert to potential intervention from Tokyo to shore up the battered yen.

“At this point it’s still about the pace of moves so if we move at the current pace it is manageable for Japan,” said BNY Mellon senior macro strategist Geoff Yu, talking about Japanese currency intervention risks.

“Overall, the dollar environment is driving things,” he added.

The euro was a touch stronger at $1.0684 , while sterling was 0.2% stronger at $1.2254.

Britain’s currency was 0.2% firmer against the euro at around 87.24 pence after news of changes to the make-up of the UK government.

Prime Minister Sunak brought back former leader David Cameron as foreign minister in a reshuffle triggered by his firing of Interior Minister Suella Braverman after her criticism of the police threatened his authority.