(Adds new comment, updates prices)
U.S. yields send dollar/yen higher
Dollar index lower on market consolidation
Focus on Tuesday's CPI report
Peak fed funds rate is seen at 5.2% in July
The dollar rose to six-week highs against the rate-sensitive Japanese yen in choppy trading on Monday, on expectations the Federal Reserve will keep monetary policy tight for longer, sending short-term U.S. Treasury yields higher.
The U.S. currency, however, fell against most currencies as investors pared back long dollar positions after a strong rally last week.
Expectations for U.S. rates to remain higher for longer will be challenged or reinforced by the week's main event - the release of U.S. consumer price data on Tuesday - which loomed over Monday's trading.
"For the Fed, it doesn't seem that rate hikes are over yet. (Fed Chair Jerome) Powell hinted of a higher peak rate last week if the jobs market continues to be hot," said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull in Toronto.
"I found the Fed speak last week to be hammering home higher rates for longer. That's why the U.S. dollar has had momentum over the last week and a half."
The dollar rose to 132.91 yen, the highest since Jan 6. JPY=EBS . It was last up nearly 1% at 132.69 yen.
The greenback tracked the rise in the U.S. Treasury two-year yield, which was last up three basis points (bps) at 4.542% US2YT=RR , after hitting its highest since late November.
"The market doesn't want to be short dollar/yen ahead of CPI tomorrow," said Marc Chandler, chief market strategist at Bannockburn Forex in New York.
The euro EUR=EBS hit a one-month low of $1.0656 in Asia trading, but was last at $1.0718, up 0.4%. The British pound GBP=D3 rose 0.6% to $1.2133, after hitting a one-month low of $1.1961 last week GBP=D3 .
That left the dollar index =USD , which tracks the greenback against six major currencies, at 103.35, down 0.2%.
"We have a nice pullback in the U.S. dollar after a strong rally last week," said Bannockburn's Chandler.
"I don't think we have taken out key levels just yet. But we're consolidating some positions after last week's moves and ahead of tomorrow's CPI."
Higher U.S. yields were a major driver of the softer yen. The benchmark 10-year U.S. Treasury yield on Monday hit a fresh six-week high of 3.755% US10YT=RR and the two-year yield US2YT=RR hit its highest since late November at 4.56%.
The Japanese currency dropped sharply last year to a 32-year low of 151.94 per dollar as U.S. rates rose, while Japanese rates stayed near zero.
It has regained ground this year as U.S. rates seemed to be near their peak, and as expectations rose that the Bank of Japan would move away from its ultra-loose stance, but both scenarios now look like they have been delayed.
Sources said on Friday that former Bank of Japan board member Kazuo Ueda is set to become the next governor. In an interview the same day, Ueda said it was appropriate for the BOJ to maintain its current ultra-easy policy.
In the United States, much stronger jobs data released at the start of February suggests the economy is performing strongly, meaning the Fed is more likely to keep rates elevated.
As a result, Tuesday's U.S. CPI report release will be a pivotal event. Money markets are positioned for U.S. interest rates to peak at 5.2% around July, compared with the Fed's current target rate of 4.5-4.75%, but have mostly walked back expectations of major rate cuts later in the year. FEDWATCH
Elsewhere, the Swiss franc strengthened after Swiss inflation data came in higher than expected. The dollar slid as low as 0.92 Swiss francs and was last down 0.3% at 0.9210 francs CHF=EBS .
======================================================== Currency bid prices at 12:03PM (1703 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 103.3300 103.6000 -0.25% -0.155% +103.8400 +103.2900 Euro/Dollar EUR=EBS $1.0720 $1.0678 +0.37% +0.03% +$1.0727 +$1.0656 Dollar/Yen JPY=EBS 132.6450 131.4150 +0.96% +1.20% +132.9000 +131.1100 Euro/Yen EURJPY= 142.19 140.27 +1.37% +1.35% +142.3800 +140.3200 Dollar/Swiss CHF=EBS 0.9205 0.9237 -0.31% -0.41% +0.9259 +0.9200 Sterling/Dollar GBP=D3 $1.2137 $1.2059 +0.65% +0.36% +$1.2145 +$1.2031 Dollar/Canadian CAD=D3 1.3348 1.3346 +0.02% -1.48% +1.3379 +1.3325 Aussie/Dollar AUD=D3 $0.6964 $0.6919 +0.66% +2.17% +$0.6968 +$0.6891 Euro/Swiss EURCHF= 0.9866 0.9861 +0.05% -0.27% +0.9877 +0.9847 Euro/Sterling EURGBP= 0.8829 0.8852 -0.26% -0.17% +0.8876 +0.8824 NZ NZD=D3 $0.6358 $0.6311 +0.76% +0.15% +$0.6364 +$0.6291 Dollar/DollarDollar/Norway NOK=D3 10.1010 10.1565 -0.47% +3.01% +10.1800 +10.1000 Euro/Norway EURNOK= 10.8302 10.8351 -0.05% +3.21% +10.8680 +10.8113 Dollar/Sweden SEK= 10.3794 10.4524 -0.31% -0.27% +10.4913 +10.3785 Euro/Sweden EURSEK= 11.1288 11.1631 -0.31% -0.19% +11.1860 +11.1245 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
