The US dollar touched a six-month high against the Japanese yen Tuesday amid expectations that the Federal Reserve will continue hiking interest rates for longer and a deadlock in debt ceiling talks.
The dollar rose to a near six-month peak of 138.80 against the yen in early Asia trade before falling to 138.44 as of 9:00 am GST, amid a contrast between a still-hawkish Fed and an ultra-dovish Bank of Japan.
"Markets are pricing for higher rates for longer by the Fed," Tina Teng, market analyst at CMC Markets, told Reuters. "U.S. inflation is still way above the target ... and near-term, the economy is running resilient."
Some Fed heavyweights who spoke Monday kept the prospect that the central bank will still continue it's tightening monetary policy.
St. Louis Fed President James Bullard said that the central bank may still go for another half-point increase this year. Minneapolis Fed President Neel Kashkari said that US rates might have to go "north of 6%" to bring inflation down to the Fed's 2% target.
Meanwhile, traders are pricing in a roughly 26% chance that the Fed will make another 25-basis-point rate hike in June, compared to a 20% chance a week ago, according to the CME FedWatch tool.
Expectations of interest rate cuts later this year have also been scaled back, with rates seen holding at around 4.7% by December.
