TOKYO, Nov. 1 (Reuters) – The dollar traded near a two-and-a-half-week high on Monday with its major peers, as accelerating inflation in the United States reinforced the case for a previous interest rate hike from the Federal Reserve.
It approached a week and a half high against the yen after the safe haven Japanese currency weakened as the ruling party’s strong performance in the weekend election reduced political uncertainty .
The dollar index, which measures the greenback against six rivals, was little changed at 94.166, hovering near Friday’s high of 94.302, a level not seen since October 13.
The US currency bought 114.175 yen, gaining 0.13% from the end of last week. Above 114.41 would be the strongest since October 20, the day it hit a multi-year high of 114.695.
The ruling Liberal Democratic Party of new Japanese Prime Minister Fumio Kishida defied expectations and held a strong majority in Sunday’s parliamentary elections, bolstering its position within a cranky party and allowing it to step up measures to relaunch. Read more
“The reduction in political uncertainty is playing out with a slight weakness in the yen this morning,” said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.
“The main driver of the dollar-yen direction going forward remains the Fed.”
Monetary policy in the United States and elsewhere is the center of attention this week, with the Federal Open Market Committee widely expected to announce a cut in stimulus on Tuesday.
A 4.4% increase in the government index of basic personal consumption expenditure – the Fed’s preferred measure of inflation – solidified market expectations for a rate take-off around the middle of next year. Read more
Following the data, federal funds rate futures, which track short-term rate expectations, took into account a 90% chance of a quarter-point tightening by June 2022, taking into account account for a further rate hike by December.
The Reserve Bank of Australia also decides its policy on Tuesday, with markets disputing the central bank’s claim that rates will not rise until 2024.
The Australian dollar slipped 0.14% to $ 0.7509, continuing its decline from a nearly four-month high of $ 0.75555 reached last week.
The Bank of England announced its policy decision on Thursday, with markets weighing in on whether the monetary authority will raise rates at the meeting.
The British pound weakened slightly to $ 1.36775 and plunged earlier to $ 1.3663 for the first time since mid-October.
Meanwhile, the euro was roughly stable at $ 1.15575, staying close to Friday’s low of $ 1.1535, the weakest since October 13.
Reporting by Kevin Buckland; edited by Richard Pullin
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