Higher US bond yields push Yen to 4-week low ahead of key inflation data

The Aussie dollar was down 0.47% at $0.6618, even after Australian consumer price inflation unexpectedly rose to a five-month high in April

The dollar rose on Wednesday, boosted by higher US bond yields ahead of key inflation data later in the week, and strengthened against the Japanese yen.

The dollar reached as high as 157.715 yen on Wednesday, edging closer to levels that led to bouts of likely intervention from Tokyo at the end of April and early May.

It was last at 157.665 yen, up 0.3 per cent on the day.

"I think it's just going to continue to be a grind higher for dollar/yen, all across yen pairs as well," said Brad Bechtel, global head of FX at Jefferies. "It's basically tiptoeing its way back towards that 160 level."

Slightly softer US consumer price inflation data this month weakened the dollar across the board. Since then, US Treasury yields have resumed their climb, with the benchmark 10-year yield at its highest in almost four weeks at 4.57 per cent.

The main drivers were Tuesday's lackluster auction of two- and five-year notes that raised doubts about demand and data showing US consumer confidence unexpectedly improved in May.

The US dollar index was last up 0.43 per cent at 105.11. The US core personal consumption expenditures (PCE) price index report - the Federal Reserve's preferred measure of inflation - will be released on Friday. Expectations are for it to hold steady on a monthly basis.

Apart from the Japanese yen, most foreign currencies have rallied against the US dollar since mid-April, said Marc Chandler, chief market strategist at Bannockburn Global Forex. "I'm thinking that that move is over and we should look for a dollar rebound."

The Aussie dollar was down 0.47 per cent at $0.6618, even after Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to risks that the next move in local interest rates might be up. [AUD/]

Also in the mix for the yen was the carry trade, which involves borrowing in a low-yielding currency to invest in higher yielders.

"The yen remains under considerable downward pressure with carry appetite elevated due to low FX volatility," Derek Halpenny, head of research global markets EMEA at MUFG, said in a note, citing elevated levels in euro/yen and sterling/yen.

The euro dropped to a near two-year low on the pound of 84.84 pence, driven by strong German regional inflation data.

It recovered after nationwide German data showed inflation rose slightly more than expected to 2.8 per cent in May, though that is unlikely to change expectations for a European Central Bank rate cut next month.

The common currency was last down 0.49 per cent at $1.0804.

The pound weakened to $1.2702 a day after hitting a two-month high.