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Dollar hits near eight-year high on hopes for US rate hike

TOKYO: The dollar hit a near eight-year high against the yen Tuesday on mounting speculation that the Federal Reserve will lift interest rates by mid-year as the US economy picks up strength.

In Tokyo, the greenback briefly surged to a high of 122.02 yen in mid-day trading, around levels not seen since July 2007.

The dollar later settled back to 121.68 yen, but was still up from 121.15 yen in New York.

The euro was hovering around 11-year lows on the dollar as the European Central Bank embarked on its long-awaited bond-buying stimulus programme. The single currency slipped to $1.0797 from $1.0854 in US trade, and to 131.39 yen from 131.49 yen.

“The US economy is moving in the right direction, and expectations of a rate hike should continue until the Fed’s meeting next week, which means the yen could continue to weaken against the dollar,” Toshihiko Matsuno, chief strategist at SMBC Friend Securities, told Bloomberg News.

Friday’s jobs data added to growing evidence that the US economy is the recovery track and fanned expectations that the Fed will lift rates as early as June.

On Monday, Dallas Fed President Richard Fisher warned of a recession risk if a rate hike was delayed.

“Fisher’s comments have added spice” to the dollar rally, said Daisaku Ueno, chief currency strategist in Tokyo at Mitsubishi UFJ Morgan Stanley.

The dollar has surged after the Fed wound up its bond-buying quantitative easing (QE) in late 2014.

That came just as the Bank of Japan stepped up its own similar programme, while on Monday, the ECB embarked for the first time on QE as it tries to fend off deflation in the eurozone.

Investors are also keeping an eye on Greece as it prepares for technical talks on extending its crucial bailout on Wednesday.

The Greek government on Monday outlined reforms demanded by lenders in exchange for further cash at a meeting of eurozone finance ministers in Brussels.

The ministers agreed last month to extend Greece’s current bailout until June as long as Athens comes up with suitable proposals, although investors are on edge after Eurogroup chief Jeroen Dijsselbloem accused the Greeks of wasting time.

The dollar was mostly stronger against other Asia-Pacific currencies.

It climbed to 62.77 Indian rupees from 62.67 rupees, to 1,121.05 South Korean won from 1,111.82 won, to Sg$1.3860 from Sg$1.3815, and to 32.63 Thai baht from 32.57 baht.

The dollar also edged up to 44.28 Philippine pesos from 44.27 pesos, while it was unchanged at Tw$31.56.

The US unit eased to 13,065.00 Indonesian rupiah from 13,067.50 rupiah on Monday– its highest level since mid-1998.

The Australian dollar weakened to 76.44 US cents from 76.96 cents, while the Chinese yuan rose to 19.43 yen from 19.31 yen. -AFP

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