- The dollar held near a two-month high against the yen on Monday.
- The Chinese yuan, which has been supported by a strong economic recovery, extended a recent rally to three-year highs even as Chinese authorities appeared to try to curb its rise.
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 Chinese yuan, which has been supported by a strong economic recovery, extended a recent rally to three-year highs even as Chinese authorities appeared to try to curb its rise.
The dollar ticked down 0.2% to 109.64 yen in a trade dominated by month-end dollar selling from Japanese exporters, but stood not far from Friday's peak of 110.20, which was its highest since early April.
The U.S. inflation data released on Friday also briefly drove the greenback higher against other currencies that day, though the currency ran out of steam ahead of a long weekend in New York and London.
U.S. consumer prices surged in April, with a measure of underlying inflation blowing past the Federal Reserve's 2% 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 3.1% from a year ago, a tad above market expectations for a 2.9% 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 2%, 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 on investors' expectations that the Federal Reserve will keep the current pace of asset purchase for many months, 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. Treasury yield dropped 2.9 basis points to 1.581%, marking the second straight month of declines after having risen sharply earlier this year on inflation fears.
But with key Fed officials now openly acknowledging the need to discuss tapering, further signs of strength in the U.S. economy, could fuel debate about tapering, analysts said.
While trade in G10 currencies was relatively calm due to a UK and U.S. market holiday on Monday, the Chinese yuan maintained its bullishness even as Beijing appears to step up its efforts to curb the currency's strength.
State media Xinhua News on Sunday reported Sheng Songcheng, a former central bank official, said the rapid appreciation of China's yuan against the U.S. dollar may have overshot and will not be sustainable.
"The fact that Xinhua ran the interview of the former PBOC official is interpreted as an effort to stabilise the yuan," said Ei Kaku, senior currency strategist at Nomura Securities.
The Chinese authorities could step up efforts to prevent the yuan from rising above its 2018 highs, namely 6.2360 for the offshore yuan and 6.2418 for the onshore yuan, she added.
The offshore yuan ticked up to 6.3560 per dollar while the onshore rate rose to 6.3609 per U.S. unit.
In volatile cryptocurrencies, bitcoin dropped a tad to $34,470, edging near a one-week intraday low of $33,425 hit on Sunday. Ether fell 4% to $2,288.
Bitcoin was down 40% so far this month, on track for its biggest monthly fall since at least 2011, while ether has lost 17%, having moved in a wide range between $4,380 and $1,730.