U.S. Dollar Rallies to One-month High Against the Japanese Yen

Despite the limited trade and the relatively low volume due to the U.S. bank holiday, the dollar hit a two-month high against a basket of currencies and a one-month high against the Japanese Yen on Monday, in reaction to comments from Fed Chair Janet Yellen late Friday, which fanned expectations for U.S. rate hikes in the near future.

The USD/JPY rose to 111.444 before settling back to 111.128, up 0.904 or +0.82%. Political events were also supporting the dollar against the yen. According to a senior ruling party official, Japanese Prime Minister Shinzo Abe said he would delay a sales tax hike scheduled for next April.

Japan is also expected to compile a supplementary budget designed to boost the stagnant economy, a move which is widely expected to be followed by further monetary easing by the Bank of Japan.

The news also supported the EUR/JPY, which closed at 123.818, up 1.340 or +1.09%.

The GBP/USD closed at 1.4622, up 0.0007 or +0.05%. The range was limited and volume well-below average due to a U.K. bank holiday.

The EUR/USD recovered after early session weakness to finish ahead at 1.1141, up 0.0030 or +0.27%. The market reached a 2 ½ month low during the Asian session.

The early selling in the Euro was a reaction to Yellen, who said on Friday a rate increase in the coming months “would be appropriate,” if the economy and labor market continued to improve.

Yellen’s comments have raised the chances for a June or July rate hike, according to the Fed Funds indicator. This is supporting the U.S. Dollar. However, many investor are refraining from taking an aggressive long position until after the release of the U.S. Non-Farm Payrolls report on Friday. Better-than-expected jobs data should send the Greenback higher. Traders are also likely to react to this week’s institute for Supply Management report.

The U.S. Non-Farm Payrolls report is expected to show the economy added 160K jobs in May. Average Hourly Earnings are expected to come in at 0.2% and the Unemployment Rate is expected to dip to 4.9%.

The ISM Manufacturing PMI report is expected to show a reading of 50.6. A reading under 50 will indicate a contraction. This report will be released on Wednesday, June 1 at 1400 GMT.