TOKYO/LONDON, Feb 13 (Reuters) – The dollar neared a five-week high against major rivals on Monday, as the Japanese yen slipped and investors increased bets that the US Federal Reserve would keep monetary policy tight for longer holds.
The main event this week will be Tuesday’s release of US consumer price data, which will boost expectations for Fed policy.
The dollar rose 0.7% to 132.48 yen as traders reassessed their expectations for the policy stance of Japan’s likely new central bank governor, to be officially announced on Tuesday.
Sources said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-loose policy.
“Markets are beginning to understand that the new governor will not be as restrictive as (investors) initially thought,” said Naka Matsuzawa, chief strategist at Nomura in Tokyo.
“His stance on current politics is more balanced or a bit more dovish,” which will keep the yen weak, Matsuzawa said.
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The euro and sterling were steady against the dollar on the day, with the European common currency at $1.0685 and sterling at $1.206, leaving the dollar index, which tracks the US currency against six major peers, stayed at 103.61.
The index hit 103.8 in early trade. A break above 103.9 would have taken it to its highest level since early January.
A strong US CPI reading would raise expectations of tighter Federal Reserve policy and likely push the dollar higher.
US payrolls data released in early February, which came in much better than expected, suggests the economy is performing strongly, meaning the Fed is less at risk of keeping rates high.
“This week’s US CPI is one of the most important dates in recent memory,” Barclays analysts said in a statement.
“The dollar has rallied on strength in the US jobs market, but the evolving narrative is expected to be updated again on Tuesday.”
Money markets are positioned for a US interest rate peak of just under 5.2% in July compared to the current target range of 4.5-4.75%.
The Swiss franc briefly strengthened after Swiss inflation data came in higher than expected.
The dollar slipped as low as 0.9220 Swiss francs before bouncing back. It was last listed at 0.9237 Swiss francs and rose by a hair that day.
Reporting by Kevin Buckland in Tokyo and Alun John in London Editing by Shri Navaratnam and Simon Cameron-Moore
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