Dollar Marks Bullish Extension Against Yen as Geopolitical Tensions Blow Hot

In bumpy trading on Tuesday, the U.S. dollar (USD) moved higher, building on previous gains ahead of a crucial inflation report later this week that is anticipated to indicate stubbornly high price pressures.

While investors were uneasy due to concerns about increasing interest rates and geopolitical issues, the dollar’s attitude overall remained strong. Meanwhile, the Japanese yen (JPY) lingered close to the level that prompted last month’s intervention by the Bank of Japan (BoJ).

The dollar should move back toward the 2002 top set last month as a result of strong U.S. job market statistics and high inflation prediction expectations come Thursday, which all but eliminated prospects for anything other than rising interest rates until 2023.

Commenting on the market outlook, Mazen Issa, a senior FX strategist, at TD Securities, explained:

“The U.S. payrolls report last Friday was pretty strong and a big blow to anybody looking for a Fed pivot anytime soon. The Fed needs to keep the pedal to the metal here and make it clear that the economy is still too strong including the labor market and inflation.”

Issa added: “We have yet to see any momentum on the inflation front. Ultimately for FX, it’s still a dollar game and there is really no relief in sight until we make significant inroads in the labor market and inflation.”

Additionally, risk aversion was reduced as a result of Tuesday’s Russian airstrikes on Ukrainian cities in retribution for a blast that destroyed the sole bridge connecting Russia to the Crimean peninsula it has annexed.

Dollar Nearing a Multi-Decade High on Tuesday

Midway through the morning’s trade, the U.S. dollar index was up 0.1% at 113.19, moving closer to the 20-year high of 114.78 it attained late last month. The dollar reached a three-week high of 145.86 versus the yen, just missing the 24-year top of 145.90 reached right before the Japanese government intervened to support the single currency three weeks ago. At press time, the USD/JPY pair trades flat at 145.73.

Hirokazu Matsuno, the top cabinet secretary of Japan, reaffirmed the government’s readiness to weigh in earlier today, promising to take “appropriate steps on excess FX moves.”

The yen has strengthened in recent weeks due to the fear of intervention, but it retreated to multi-decade lows as analysts watch to see if the BoJ will intervene once more.