Dollar Up, Yen Down Over Surprise Japan Election Result By

© Reuters.

By Gina Lee

– The dollar was up on Monday morning in Asia, remaining near a two-and-a-half-week high. Increasing inflation in the U.S. that strengthened the case for earlier U.S. Federal Reserve interest rate hikes gave the U.S. currency a boost.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.08% to 94.195 by 12:34 AM ET (4:34 AM GMT). The index remained near Friday's peak of 94.302, a level not hit since Oct. 13.

The USD/JPY pair was up 0.24% to 114.28.

The AUD/USD pair was down 0.27% to 0.7501 while the NZD/USD pair inched up 0.05% to 0.7168.

The USD/CNY pair inched down 0.01% to 6.4046, with China's Caixin manufacturing purchasing managers index (PMI) for October at 50.6. The manufacturing and non-manufacturing PMIs, released the day before, were at 49.2 and 52.4 respectively.

The GBP/USD pair edged down 0.11% to 1.3676.

The dollar also approached a one-and-a-half-week high to the yen after Japanese Prime Minister Fumio Kishida's ruling Liberal Democratic Party held its strong majority in Sunday's parliamentary election in a surprise move. This reduces the political uncertainty in the country and allows Kishida to press forward with ramping up stimulus.

"The reduction in political uncertainty is playing out with slight yen weakness this morning. The bigger driver of dollar-yen direction going ahead remains the Fed,” Barclays (LON:BARC) senior FX strategist Shinichiro Kadota told Reuters.

Data released on Friday showed that the U.S. personal consumption expenditures price index was at 4.4 year-on-year while growing 0.3% month-on-month, in September. The Fed's preferred inflation measure continued a run of inflation at levels not seen in 30 years and solidified market expectations for an interest rate hike around mid-2022.

Following the data’s release, futures on the fed funds rate, which track short-term rate expectations, priced in a 90% chance of quarter-point tightening by June 2022, factoring in another rate increase by December.

The Fed is widely expected to announce that it will begin asset tapering when it hands down its policy decision on Wednesday. The Reserve Bank of Australia will hand down its policy decision on Tuesday, with the Bank of England following on Thursday.

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