An illustration of U.S. dollars, Swiss francs, pounds sterling and euros banknotes, taken in Warsaw January 26, 2011. REUTERS/Kacper Pempel

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TOKYO, Feb 9 (Reuters) – The dollar hit a one-month high against the yen on Wednesday, boosted by a rise in Treasury yields to multi-year highs overnight as traders await inflation data US this week for clues on the pace of Federal Reserve policy tightening.

The euro continued to pull back from a nearly three-month high against the Japanese currency after European Central Bank President Christine Lagarde this week ended expectations of aggressive interest rate hikes. interest.

A more hawkish tone from the ECB and the Fed last week caught markets off guard and pushed eurozone yields and US debt higher on anticipation that rates could rise faster and higher than expected.

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The dollar rose at one point in early Asian trading to 115.69 yen, the highest since Jan. 10, before easing back to last trade down 0.08% at 115.43.

The 10-year Treasury yield climbed as high as 1.97% on Tuesday for the first time since November 2019.

The yield on the two-year note, which is more sensitive to interest rate expectations, hit 1.347 for the first time since February 2020.

Markets are pricing in more than a 70% chance of a 25bp hike and nearly a 30% chance of a 50bp hike when U.S. policymakers meet in March, according to CME’s FedWatch tool .

Strong U.S. inflation could rise further before it improves, San Francisco Fed President Mary Daly said on Tuesday. Read more

Consumer prices likely rose 7.3% year-on-year in January, according to economists polled by Reuters, who expect US data to be released on Thursday.

The dollar index, which measures the greenback against six major peers, edged up 0.02% to 95.614, after rebounding from a 2.5-week low of 95.136 hit on Friday. It hit the highest since June 2020 at 97.441 late last month.

The dollar index is “in a holding pattern as markets weigh the prospect of a sharp Fed policy tightening in the face of the ECB’s hawkish reversal,” Westpac strategists wrote in a client note.

Although a more hawkish ECB is keeping a cap on near-term dollar gains, the “mid-term dollar uptrend is still intact” and the dollar index is buying on dips at the 95 low, they wrote.

The ECB’s Lagarde said on Monday that significant tightening was unnecessary, trying to temper rising expectations of aggressive action after opening the door last week to a possible rate hike this year.

The euro was roughly flat at $1.1420, after its gradual pullback from a high of $1.1483 on Friday, which was the highest level in nearly three months.

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Bid rates for currencies at 01:44 GMT

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Reporting by Kevin Buckland; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.