US Dollar at 5-Day High
The dollar strengthened against the yen on Friday.
The US 10-Year treasury yield is currently 3.64% (an up ~25bps in a week)
The dollar rose to a six-month high of 138.75 yen. The greenback was also up against other major currencies, with the euro down 0.1% at $1.0777 and sterling down 0.05% at $1.2415.
The move higher in the dollar came after U.S. President Joe Biden and top congressional Republicans said they were close to reaching a deal to raise the federal debt ceiling. The debt ceiling is the limit on how much money the U.S. government can borrow, and it was set to be reached on Thursday. The market has been reacting to this headline. Low probability that the US ever defaults on its debt, while the political show can be traded. Key reason why the dollar could continue to run over the next weeks.
For the June 15 meeting, CME pins the odds that there is a ~65% chance that Fed does not raise rates and a ~35% chance it increase rates by 25bps, based on current market prices.
Higher interest rates make the dollar more attractive to investors. This is why the dollar tends to strengthen when investors expect that interest rates will rise.
The dollar’s strength against the yen could also be attributed to the Bank of Japan’s (BoJ) continued commitment to its ultra-loose monetary policy.
Japan’s core consumer price inflation rose 3.4% in April y/y as price hikes broadened, data showed recently, which has cast doubt on the central bank’s view inflation will move back below its 2% target later this year as cost pressures dissipate. Despite that, The Bank of Japan (BOJ) has so far resisted calls to raise rates, arguing that the increase in prices is temporary.
However, the April data suggests that core inflation may be picking up, which could put pressure on the BOJ to change its policy.
Fed Scholar 
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