(Investing.com) - The U.S. dollar traded higher Monday, making gains against the Japanese yen, in particular, benefiting from the monetary policy divergence between the two countries.
At 3 AM ET (0700 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher at 99.218.
The Bank of Japan moved into the market earlier Monday, offering to buy unlimited amounts of 10-year Japanese government bonds at 0.25% in order to prevent these bond yields from rising above their key target after the benchmark 10-year JGB yield crept up to a six-year high of 0.245%.
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This dovish stance contrasts vividly with the U.S. Federal Reserve hiking rates by a quarter percentage point a couple of weeks ago and Fed Chair Jerome Powell indicating that the central bank is prepared to raise rates in half-point increments to combat inflation if warranted.
USD/JPY climbed 1.2% to 123.47, rising to its strongest level since December 2015, and up over 7% in the last month.
Friday’s U.S. nonfarm payrolls report for March could help to cement further tightening by the Fed, with economists expecting the U.S. economy to have added 475,000 jobs after 678,000 were created in February, while average hourly earnings are forecast to increase 5.5% on a year-over-year basis.
Additionally, Thursday sees the release of personal consumption expenditures data, a gauge of inflation closely watched by the Fed.
The core PCE price index is expected to rise 5.5% on an annual basis, staying well above the Fed’s 2% inflation target.
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Elsewhere, EUR/USD fell 0.3% to 1.0952, still under pressure because of the economic impact of the war in Ukraine.
Inflation figures from major European economies and the Eurozone are due from Wednesday, and while the European Central Bank policymakers will be keen to move to address prices at historically high levels they are also very aware of the headwinds to growth in the region caused by the Ukraine war.
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“We think that lingering Russia-related downside risk for sentiment and upside risk for commodity prices continue to warrant a stronger dollar and weaker European currencies,” said analysts at ING, in a note. “Accordingly, the balance of risks for EUR/USD remains skewed to the downside in our view, and we expect a drop to 1.08-1.09 in the coming weeks.”
GBP/USD fell 0.3% to 1.3152 and AUD/USD rose 0.1% to 0.7518, holding near last week's four-month high ahead of Australia's budget on Tuesday.
USD/CNY rose 0.1% to 6.3720 after a surge of Covid-19 cases prompted China’s authorities to lock down Shanghai, the country’s financial hub, for eight days.