Yen and yuan suffer as Fed rises faster

The dollar was aiming for its seventh straight weekly gain against the yen on Friday and its best weekly gain against the Chinese yuan in more than two years, as rising U.S. yields boosted the dollar.

 

China is easing monetary policy and Japan is holding its government bond yields to zero, while Federal Reserve Chairman Jerome Powell said a 50 basis point rate hike could be considered at the next meeting in two weeks.

 

That announcement, while more or less in line with market expectations, sent the yield on five-year U.S. bonds above 3% for the first time since 2018, sparking a rebound in the euro.

 

The euro last bought $1.0837 and is not well above a two-year low, even as markets begin to assess higher rates - two-year yields in Germany hit an eight-year high overnight.

 

The yen was down 1.6% for the week and last traded at 128.35 per dollar, just above Wednesday's 20-year low of 129.43. The U.S. dollar index held above the 100 mark at 100.83.

 

The yuan broke through its 200-day moving average this week and hit a fresh seven-month low of 6.4830 in early session offshore trading. It last traded at 6.5004.

 

"The (swap) market is now pricing in a 146 basis point tightening over the next three Fed meetings," Commonwealth Bank of Australia analyst Carol Kong said.

 

"The dollar could get additional support from safe haven demand today if April's PMIs raise market concerns about the outlook for global growth," she added, referring to purchasing managers' index data due out in Europe and the U.S.

 

Growth worries have been holding back oil prices lately, and along with fears of economic damage from factory closures in China put pressure on commodity currencies overnight.

 

The Australian dollar fell 1 percent on Thursday and was hanging around its 50-day moving average at $0.7308 on Friday. The New Zealand dollar also fell 1 percent overnight and was down to $0.6685 on Friday.

 

Japanese Finance Minister Shunichi Suzuki said Friday that the recent fall in the yen was "sharp," and his comment seemed to halt the yen's losses, although he added that he did not express concern about it in a meeting with U.S. Treasury Secretary Janet Yellen.

 

Japan's core consumer prices rose at the fastest pace in more than two years in March, raising the risk that policymakers may try to shore up the currency to ease pressure on households from rising energy and imported food prices.

 

The pound was down to $1.2909.