US dollar hits 5-year high vs yen

The US dollar rose to a five-year high versus the yen on Tuesday, boosted by expectations of US Federal Reserve rate hikes, as investors bet that the fast-spreading Omicron coronavirus variant would have limited economic impact.

In the second trading day of 2022, global markets extended the upbeat moves seen on Monday.

The dollar’s gains were helped by a rise in US treasury yields, as investors bet on the Fed raising rates, with the US 2-year and 5-year notes soaring to their highest since March 2020.

At 0839 GMT, the dollar index was up 0.1 per cent at 96.278, having exceeded Monday’s gains to reach a six-day high of 96.335 earlier in the session.

Versus the yen, the dollar was up 0.4 per cent at 115.835, extending its overnight gains to reach its highest since January 2017.

The euro was little changed versus the dollar, at $1.1296.

Investors see Omicron as potentially less disruptive to the global economy than previous variants, following studies suggesting that the risk of hospitalisation is lower.

“As Omicron is not translating to severe infection and death, the initial risk off shock has been completely erased and markets are focused on the supply chain impact and inflationary narrative,” wrote Elsa Lignos, global head of FX strategy at RBC Capital Markets, in a note to clients.

Asia’s factory activity grew in December as companies withstood rising global cases of the Omicron variant, though persistent supply constraints and rising input costs clouded the outlook for some economies.