Dollar Up over Bets of Intensified Monetary Tightening Following Inflation Data

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Dollar Up over Bets of Intensified Monetary Tightening Following Inflation Data

By Zhang Mengying

Investing.com – The dollar was up on Monday morning in Asia as Friday’s red hot inflation data suggested more aggressive monetary tightening from the U.S. Federal Reserve.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies gained 0.29% to 104.45 by 1:32 AM ET (5:32 AM GMT).

The USD/JPY pair was up 0.30% to 134.82. The yen rallied briefly late on Friday when Japan’s government and the central bank said that they were concerned about the yen’s recent sharp falls. The rare statement could be seen as a signal that Tokyo could intervene to support the currency. The Bank of Japan (BOJ) will hand it down on Friday while investors expect little change from the BOJ.

“Rising overseas yields and energy prices coupled with continued dovish Bank of Japan messages have pushed USD/JPY to two-decade highs,” Barclays (LON: BARC ) analysts told Reuters. The pair is expected to trade between 131 and 136 this week.

“There are no clear thresholds above (2002 high) other than the round figures of 136, 137, and 138,” Barclays analysts added.

The AUD/USD pair fell 0.30% to 0.7029, and the NZD/USD pair fell 0.39% to 0.6345.

The USD/CNY pair was up 0.29% to 6.7282, while the GBP/USD pair edged down 0.16% to 1.2294.

Beijing announced on Sunday three rounds of mass testing as it saw new COVID-19 outbreaks, adding to investors’ concerns about a grim economic outlook.

The Bank of England will hand down its policy decision on Thursday, it is expected to hike interest rates.

The U.S. consumer price index released Friday rose 8.6% in May year-on-year, a fresh 40-year high, adding to investors’ concerns about a recession caused by aggressive monetary tightening.

The inflation data also sent the benchmark U.S. 10-year yield higher, touching 3.2% on Monday morning, having gained nearly 12 basis points on Friday.

The Fed will hold its June meeting Wednesday, where it is expected to deliver half-point interest rate hikes.

On the data front, the U.S. producer price index (PPI) is due on Tuesday, and China's key economic activity data including industrial production is due the day following.

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