The dollar hit multi-year highs on Tuesday against the risk-sensitive Aussie and Kiwi dollars and the yen hovered near the level that prompted intervention as worries about rising interest rates and geopolitical tensions unsettled investors.
Strong USlabor data and an expectation of inflation figures on Thursday to remain stubbornly high have all but dashed bets on anything but high interest rates through 2023 and are driving the dollar back toward multi-decade highs.
Risk appetite was also hurt on Tuesday after Russia rained missiles upon Ukraine’s cities on Monday in retaliation for blast that damaged the only bridge linking Russia to the annexed Crimean peninsula.
Sim MohSiong, currency strategist at Bank of Singapore, said things are still uncertain because of geopolitical risks such as the war in Ukraine, escalating US-China tensions and a sell-off in gilts on Monday.
“This renewed wall of worries is likely to keep the dollar supported,” he said, but cautioned that there could be a bit of a relief rally in risky assets.
US dollar index was up 0.239 percent at 113.34, inching toward the 20-year high of 114.78 it touched late last month.
The yen hit 145.80 per dollar overnight, just 10 pips short of the 24-year trough it made before the Japanese government stepped in to prop it up three weeks ago. Japan returned from a holiday on Tuesday and the yen sat at 145.69.
Fear of intervention has held the yen firm in recent weeks, but as it drifts back to multi-decade lows analysts aren’t convinced it can hold the line.
“The bigger backdrop is that the intervention is unlikely to reverse the short term trend of upward bias to dollar/yen,” Sim added.