By Kevin Buckland
TOKYO (Reuters) – The U.S. dollar stayed near its highest level in nearly 38 years against the yen on Tuesday as Treasury yields surged as investors weighed the possibility of Donald Trump being re-elected as president.
The euro held firm as French parties fought to keep the far-right National Rally (RN) from taking power.
Asian stocks were mixed across the board, but crude oil edged higher following strong gains in the previous trading day.
In the afternoon, Federal Reserve Chair Jerome Powell is scheduled to speak at an event hosted by the European Central Bank, and attention will be focused on how U.S. monetary policy will unfold this week, with several employment reports, including the JOLTS job openings data due on Tuesday, the Fed’s favorite indicator.
The dollar strengthened slightly on Tuesday to 161.56 yen, approaching the previous day’s high of 161.72 yen, the first time it has hit that level since December 1986.
The pair is highly sensitive to U.S. yields, with the benchmark 10-year Treasury yield rising nearly 14 basis points to 4.479% earlier this week. Analysts attributed this to higher tariffs and increased government borrowing in anticipation of a Trump presidency. The 10-year yield was at 4.4534% as of Tokyo time.
Pepperstone’s director of research Chris Weston said President Joe Biden’s shaky debate performance last week was a catalyst for the surge in turnout, but another catalyst was the Supreme Court’s ruling Monday that gave Trump broad immunity from prosecution in his attempt to overturn his 2020 election loss.
“Bond traders are focusing on the increasing odds of a Trump presidency, and the market expects Trump 2.0 to be inflationary,” Weston said.
The yen’s plunge has put traders on high alert for possible Japanese intervention, after authorities dumped about 9.8 trillion yen ($60.65 billion) in late April and early May as the currency plunged to 160.82 yen per dollar.
The euro continued its decline against the dollar, falling 0.07% to $1.0733, its first gain since June 13, after reaching $1.0776 on Monday.
Investors were relieved that Marine Le Pen’s anti-immigrant, Eurosceptic National Front party did not win more votes in the first round of voting over the weekend.
Now the party’s opponents are uniting to strategically exclude candidates from Sunday’s second round of voting, ensuring that only the best candidates, regardless of party, will face the RN leader. The deadline to put down your ballot is Tuesday.
Asian stocks started Tuesday with a lack of overall direction, with a lack of performance.
Banks helped lift Japan’s Nikkei index by 0.6% as domestic bond yields rose, while property shares lifted Hong Kong’s Hang Seng index by 0.3%.
However, mainland Chinese large-cap stocks were flat, Taiwan’s tech-heavy benchmark fell 0.8% and South Korea’s Kospi lost 0.6%.
The MSCI index of Asia-Pacific stocks excluding Japan fell 0.2%.
Elsewhere, crude oil prices rose slightly on Monday after rising about 2% as the Northern Hemisphere summer driving season began.
Brent futures rose 0.21% to $86.78 a barrel, building on a 1.9% overnight rally. U.S. West Texas Intermediate (WTI) crude rose 0.13% to $83.49, extending a 2.3% gain from the previous session.
($1 = 161.5900 yen)
(Reporting by Kevin Buckland; Editing by Christopher Cushing)
