TOKYO: The dollar held near a two-month high against the yen on Monday after a key measure of U.S. inflation showed stronger price gains than expected, keeping alive expectations of an eventual tapering in the Federal Reserve's asset buying.
The dollar traded at 109.87 yen, having reached a 110.20 on Friday, coming within striking distance of the one-year peak of 110.97 marked at the end of March.
The U.S. inflation data also drove the greenback higher against other currencies briefly as well, though the currency run out of steam ahead of a long weekend in New York and London.
The euro changed hands at US$1.2194, off Friday's low of US$1.2133, while the British pound stood little changed at US$1.4189.
U.S. consumer prices surged in April, with a measure of underlying inflation blowing past the Federal Reserve's 2per cent target and posting its largest annual gain since 1992, due to a recovery from the pandemic and various supply disruptions.
The core personal consumption expenditures (PCE) price index, the Federal Reserve's preferred gauge of inflation, rose 3.1per cent from a year ago, a tad above market expectations of 2.9per cent rise.
Although the high reading was due partly to the base effect - prices were depressed in April 2020 because of strict lockdowns - and its annual rise is expected to moderate later this year, some investors remained nervous.
"If we see inflation consistently hitting above 2per cent, that could put upward pressure on wages. There's risk inflation trending higher than expected," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
For now though, the data had limited impact over investors' expectations that the Federal Reserve will keep the current pace of asset purchase for many months, possibly by the end of year, before tapering it.
U.S. debt yields dropped in a shortened session on Friday before a long weekend as month-end buying overwhelmed data.
The 10-year U.S. Treasuries yield dropped 2.9 basis points to 1.581per cent, marking the second straight month of declines after having risen sharply earlier this year on fear about inflation.
But with key Fed officials now openly acknowledging the need to discuss tapering, further signs of strength in the U.S. economy, such as Friday's payrolls data, could fuel debate about tapering, analysts said.
Elsewhere, the Chinese yuan held firm near its three-year high of 6.3590 per dollar hit on Friday, trading at 6.3655 in offshore trade.
A survey on China's manufacturing sector due later Monday is the next biggest focus.
In volatile cryptocurrencies, bitcoin was little changed over the weekend to trade at US$35,864 after briefly hitting one-week low of US$33,425 while ether stood at US$2,407.
On the month, bitcoin was down 38per cent so far, which would be its biggest drawdown since 2011 while ether has lost 13per cent.
(Reporting by Hideyuki Sano. Editing by Gerry Doyle)