Dollar hits one-month high

On Tuesday, the U.S. dollar rose to its highest level in more than a month against the Japanese yen, boosted by a rise in Treasury yields overnight as traders bet on an early Federal Reserve interest rate hike despite rising COVID-19 cases.

The dollar rose to 115.395 yen for the first time since November 25 as long-term Treasury yields jumped 12.5 basis points overnight to 1.6420 percent for the first time since November 24.

Money markets have fully priced in a first-rate hike in the United States by May, followed by two more by the end of 2022.

The market is pricing in a more aggressive U.S. rate hike scenario – or at least the risk of one – in 2022, and that is undeniably the dollar’s primary support.

While the Omicron variant’s surge in coronavirus cases continued to disrupt global travel and public services, as well as delay the reopening of some U.S. schools after the holidays, investors remained optimistic. The U.S. Food and Drug Administration approved using a third dose of the Pfizer and BioNTech COVID-19 vaccine for children aged 12 to 15 years old on Monday and shortened the time between booster shots to five months.

Currencies

The dollar index, which compares the greenback to the yen and five other major currencies, remained close to the one-week high of 96.328 sets on Monday. The euro traded at $1.13065, up from a one-week low of $1.12795 overnight.

The Australian dollar traded near a two-week low of $0.7184 set the previous session.

Sterling was roughly flat at $1.3480 after falling as low as $1.3431 on Monday for the first time since November 29.