US dollar climbs to near 20-year peak vs yen as more Fed hikes loom

The U.S. dollar soared to a nearly 20-year high against a sluggish yen on Wednesday, as aggressive tightening from the Federal Reserve contrasted sharply with the Bank of Japan's ultra-loose monetary policy.

The greenback rose as high as 126.32 yen, its strongest level since June 2002. It was last up 0.3% at 125.82 yen.

Against a basket of six major currencies, the dollar climbed to 100.52, the highest since May 2020, but was last little changed at 100.29. It has gained nearly 3% so far this month and was on track for its biggest monthly rise in nine months.

Bank of Japan Governor Haruhiko Kuroda on Wednesday said that the recent rise in inflation driven by higher import costs could hurt the economy, stressing the central bank's resolve to keep monetary policy ultra loose.

Data showing U.S. producer prices in March surging 11.2% on a year-on-year basis, the largest increase since 12-month data were first calculated in November 2010, reinforced market expectations that the Fed will raise interest rates by half a percentage point at next month's policy meeting.

"The United States economy seems to be isolated enough and showing enough signs of inflation that the Fed is going to continue maintaining a very, very hawkish line and acting on it, and by doing so, of course, improving the dollar value," said Juan Perez, director of trading, at Monex USA in Washington.

The dollar also rode the coattails of Tuesday's softer-than-expected U.S. inflation data, which prompted Federal Reserve Governor Lael Brainard to emphasize that the central bank is still proceeding with a series of interest rate hikes despite some signs of cooling prices.

The euro, on the other hand, fell to $1.0809, its lowest level against the dollar in more than a month.

Investors were cautious ahead of a policy-setting meeting at the European Central Bank on Thursday.

Although the market is not anticipating any interest rate changes, market participants will be looking for a more hawkish tone from ECB President Christine Lagarde that could tee up a rate hike later in the year.

Money markets are pricing in about 70 basis points of interest rate tightening by December.

Still, the euro will likely remain buffeted by the ongoing Russian invasion of Ukraine. The war, now in its second month, has pushed up the cost of gasoline and has led to a global surge in food prices, since Russia and Ukraine are major exporters of commodities including wheat and sunflower oil.

(Reporting by Hannah Lang in Washington and Saikat Chatterjee in London; Editing by Tomasz Janowski, David Holmes, Will Dunham and Gertrude Chavez-Dreyfuss)