Dollars higher when risky assets fall; The yen returns from the 1998 lows

NEW YORK, June 13 (Reuters) – The safe haven dollar rose to a new four-week high against a basket of currencies on Monday, backed by fears of a global economic downturn and betting on sharp interest rate hikes from the US Federal Reserve.

Global financial markets continued to be smart from Friday’s warmer-than-expected US inflation data, which led to a broad-based fall in risk sentiment and pushed for even more aggressive policy tightening. read more

On Monday, government bonds were sold and stock markets across the globe were beaten. read more

“The USD extended its recovery from Friday as the risk continues to relax across the board,” Brad Bechtel, global head of currency at Jefferies, said in a note.

The US Dollar Currency Index, which tracks the dollar against six other major currencies, was up 0.4% to 104.83, within sight of the highest level of 105.01 in two decades at 105.01 in mid-May.

Traders have a lot on their plate this week, including political meetings with the Fed, the Bank of England and the Swiss National Bank.

The US Federal Reserve is generally expected to raise its key interest rate by 50 basis points on Wednesday, and some, including Barclays and Jefferies, expect the Fed to raise interest rates by 75 basis points.

“A move of 75 bps (basis points) will definitely be a surprise to someone who keeps a hard line at 50 bps,” Bechtel said, adding that he expects the dollar index to move higher on such a move.

The depreciating Japanese yen, which fluctuated near lows against the dollar, not seen since 1998, was an important currency that rose against the dollar on Monday.

The yen found some support from comments from Japan’s top government spokesman on Monday that Tokyo is concerned about the sharp fall in the currency and is ready to “react correctly” if necessary. read more

The Bank of Japan (BoJ) has so far resisted pressure to tighten policy, weakening the country’s currency.

On Monday, the dollar was 0.6% lower at 133.58 yen.

The Australian dollar, seen as a floating proxy for risk appetite, fell 1.3% and the New Zealand dollar fell 1.4%.

Sterling fell to a one-month low against the dollar on Monday, and came under selling pressure after data showed that the UK economy had unexpectedly shrunk in April. Tensions with the EU over post-Brexit trade with Northern Ireland also weighed on the pound, which was down 1.1% to $ 1.2175.

Bitcoin fell 19.1% on Monday after the large US cryptocurrency lending company Celsius Network froze withdrawals and transfers with reference to “extreme” conditions, in the latest sign of how financial market turbulence is causing distress in the cryptosphere. read more

Reporting by Saqib Iqbal Ahmed; Edited by William Maclean

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