FOREX-Rampant dollar surges to new 24-year peak on Japan’s yen

By Alun John

HONG KONG, July 11 (Reuters) – The dollar climbed to a 24-year high on the yen on Monday after Japan’s ruling conservative coalition’s strong election showing indicated no change to loose monetary policies, and global growth fears helped the safe-haven U.S. currency more broadly.

The dollar climbed to as high as 137.28 yen JPY=EBS in morning trading, its firmest since late 1998. It then pared those gains slightly and was last up 0.6% at 136.93.

The dollar was also firm on the euro, which dropped 0.34% to $1.0151 heading back towards a 20-year intraday low hit on Friday, leaving the dollar index =USD up 0.36% at 107.3.

“The dollar is strengthening across the board but dollar-yen is leading the move,” said Rodrigo Catril currency strategist at National Australia Bank.

He said investors’ move away from riskier assets had been supporting the dollar overall, while the yen was particularly pressured because of the combination of high U.S. benchmark yields and Sunday’s election result indicating there would no change to Japan’s expansionary economic policy.

The Bank of Japan’s policy of keeping Japanese benchmark yields pinned down to support the economy, alongside high U.S. interest rates has been a major factor in the yen’s recent weakness, and the resultant rise in prices has caused some anger from consumers. nL4N2YE0JR

However, the coalition led by Prime Minister Fumio Kishida’s Liberal Democratic Party (LDP) increased its upper house seats in Sunday’s election, and Catril said this could reduce some of the pressure to change course. nL1N2YR011

The U.S. 10-year yield US10YT=RR was last at 3.087%, holding onto its gains from last week.

GROWTH FEARS

Away from Japan, fears about the global growth outlook, particularly as central banks look to curb runaway inflation, were pushing flows to safe havens.

“The (dollar) could remain expensive until the risks around elevated global inflation, European energy security and China’s growth outlook have been resolved,” said analysts at Barclays in a note to clients.

“This week’s U.S. CPI will be an important piece of the puzzle as the Fed decides between 50 basis points and 75 basis points ahead of the July meeting.”

U.S. CPI data is due Wednesday and markets would likely interpret a high reading as a sign the U.S. Federal Reserve would need to raise rates even more aggressively to combat inflation.

With inflation rampant across much of the world, rate hikes are also expected this week from the Reserve Bank of New Zealand on Tuesday and the Bank of Canada on Thursday. NZ/INTCA/INT

Energy concerns meant the euro was struggling against more than just the dollar and on Monday was trading at 0.85 British pence EURGBP= and 139 yen EURJPY=, just above last Friday’s levels when it hit its lowest since late May against both currencies.

In the latest worry for the European economy, the biggest single pipeline carrying Russian gas to Germany starts annual maintenance on Monday. Flows are expected to stop for 10 days, but governments, markets and companies fear the shutdown might be extended due to war in Ukraine. nL1N2YP0IM

The other main economic event this week is Chinese second-quarter GDP data on Friday, with investors watching for signs of how hard the economy was hit by COVID-19 lockdowns.

Britain will publish its second-quarter GDP data on Wednesday, but attention is more focused on the ruling Conservative party’s choice of their next leader and prime minister. nFWN2YR02V

Sterling GBP=D3 was down 0.38% against the stronger dollar at $1.1986 on Monday morning, having finished a volatile time last week not far from where it started, while the risk-friendly Australian dollar AUD=D3 fell 0.6% to $0.6814.

(Editing by Stephen Coates and Jacqueline Wong)

((alun.john@thomsonreuters.com;))