TOKYO- The dollar traded near a 2 1/2-week high to major peers on Monday as quickening inflation in the United States boosted the case for earlier Federal Reserve interest rate hikes ahead of a policy decision on Wednesday.
The greenback approached a 1 1/2-week top to the yen. The safe-haven Japanese currency weakened after a strong showing for the ruling party in weekend elections eased doubts about the new prime minister’s popularity.
The dollar index, which measures the US currency against six rivals, was little changed at 94.161, hovering close to Friday’s peak of 94.302, a level not seen since Oct. 13.
The US currency traded 0.16 percent stronger at 114.205 yen, reaching as high as 114.315. Above 114.41 would be the strongest since Oct. 20, when it hit an almost four-year high of 114.695.
Japanese Prime Minister Fumio Kishida’s ruling Liberal Democratic Party defied expectations and held its strong majority in Sunday’s parliamentary election, solidifying his position in a fractious party and allowing him to ramp up stimulus.
“The reduction in political uncertainty is playing out with slight yen weakness this morning,” said Shinichiro Kadota, senior FX strategist at Barclays in Tokyo.
“The bigger driver of dollar-yen direction going ahead remains the Fed.”
Monetary policy in the United States and elsewhere is in sharp focus this week, with the Federal Open Market Committee widely expected to announce a tapering of stimulus.
A 4.4 percent surge in the government’s index of core personal consumption expenditures – the Fed’s preferred inflation measure – solidified market expectations for a rates lift-off around the middle of next year.