FOREX-Dollar hits 2-1/2-year high against yen as Fed tapering seen on track

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* US headline payroll data soft but details show strength

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*Seen on the Fed tapering track in November

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* Dollar/Yen test April 2019 peak

* Pound, Canadian dollar supported on rate hike expectations

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TOKYO, Oct 11 (Businesshala) – The dollar ticked against the yen at a 2-1/2-year high on Monday after soft US payrolls data did not change market expectations that the US Federal Reserve would announce that it will start to thin. Its huge bond-buying next month.

The US economy created the fewest jobs in nine months in September, with non-farm payrolls growing by 194,000, less than economists’ forecast of 500,000.

Still, the August figures were sharply revised down, while the unemployment rate fell to an 18-month low of 4.8% as people left the labor force. Average hourly earnings also rose 0.6% from 0.4% in August.

All told, the ghost of the labor shortage remains firmly in place, keeping concerns about inflation alive and justifying moving the Federal Reserve to reduce the stimulus it launched for pandemic relief last year.

US bond yields rose on data, with the benchmark 10-year Treasury yield hitting a four-month high of 1.617%, adding to the dollar’s yield attractiveness.

The yen, which is considered most sensitive to the yield gap, reacted by slipping to a low of 112.32 yen per dollar, last seen in April 2019.

“Although the headline payroll figure was weak, when you look at the details, the outlook remains solid and there is nothing that can stop the Fed from going lower next month,” said Shinichiro Kadota, senior FX strategist at Barclays.

“The dollar/yen is now at the top end of its trading range, peaking at 112.40 in 2019, so I expect heavy selling there right now. Still, should it break out of that level, we can see the dollar trading at 113 or 114.” Can be seen rising up to the handle easily,” he said.

The euro was soft at $1.1575, slightly up from Wednesday’s low of $1.1529, its weakest level since July last year.

The dollar index stood at 94.09, having touched a one-year high of 94.504 earlier this month.

The US currency could rise further if Wednesday’s US consumer price data shows a pick-up in inflation and raises expectations for earlier rate hikes next year, analysts said.

On the other hand, concerns about inflation are not limited to the United States, with supply disruptions and rising commodity prices affecting many other countries.

The British pound held firm at $1.3623, extending its recovery from a nine-month low late last month on rising hopes the Bank of England could raise interest rates to curb rising inflation.

Surprisingly strong Canadian payroll data and higher oil prices led the Canadian dollar to change hands at C$1.2473 against the US dollar, reaching a two-month high of C$1.24525 on Friday.

Elsewhere, the offshore Chinese yuan turned up at 6.4438 per dollar, its October 1 high of 6.4286.

In crypto, bitcoin was steady at $54,782, reaching a five-month high of $56,561 on Sunday, while ether is soft at $3,456.

Reporting by Hideyuki Sano Editing by Shri Navaratnam

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