The U.S. dollar rose to a one-month high against the Japanese yen in Asian trading on Monday local time as the market's expectation of further interest hikes by the Federal Reserve increased.
The dollar hit 134.22 yen earlier in the season, its highest rate since mid-March. The currency was last up 0.12 percent at 133.9. In the same session, the U.S. dollar index traded sideways at 101.64. The index touched a one-year low of 100.78 last week before rebounding slightly.
The euro was flat against the U.S. dollar at $1.098. It posted a one-year high of $1.108 on Friday because the market expected the European Central Bank to prolong its monetary tightening cycle, while the Fed was projected to pause its cycle soon.
Meanwhile, the U.K. sterling slid 0.07 percent to $1.241 in the trading session after posting a 10-month high of $1.255 on Friday.
Futures tied to the Fed's policy forecast an 84 percent chance that the central bank would increase the interest rate by 25 basis points coming May, up from the 69 percent chance projected last week. The higher expectation of an additional rate hike happened after last week's data showed that U.S. consumer inflation expectations increased.
Three big U.S. banks — Wells Fargo, JPMorgan and Citigroup — also reported better-than-expected earnings on Friday, indicating that the country's economy was "not so bad."
Analysts, however, explained an update from the Bank of Japan (BoJ) contributed more to the dollar's rally against the yen.
"The dollar has bounced back but also we've had comments from the Bank of Japan indicating that there is no real reason for them to pull back from their ultra easy policy," Jane Foley, head of FX strategy at Rabobank, said.
The BoJ maintains a dovish rate policy as peers in various countries increase their benchmark rates to combat inflation. The market previously expected that the recent change of leadership in the BoJ would shift the bank's policy. However, new governor Kazuo Ueda asserted last week that the central bank had no plan to raise the interest rate at this time.
Fed official supports further rate hikes
The dollar's rally against the Japanese yen followed a hawkish remark by Fed governor Christopher Waller, who said he supported more rate hikes. Waller argued that inflation was "still much too high" even though the monetary tightening cycle had been going on for over a year.
The consumer price index showed headline inflation had slowed in March as food and gas prices dropped. Excluding the two volatile categories, core consumer prices still grew 5.6 percent year-over-year. Waller said core prices had grown around the same pace in over a year.
The Fed board member, nevertheless, acknowledged the risk of an economic slowdown following the collapse of Silicon Valley Bank and Signature Bank last month. Analysts have said banking stresses triggered by the failure can lead to tighter lending requirements, and businesses and households would have greater difficulty in obtaining loans with those strict conditions.
Waller said he would "closely" monitor the impact of the recent banking turmoil to determine the next policy action.
The Fed official also pointed out that while showing early signs of declining, job growth in the U.S. remained strong. A robust job market, which could lead to wage inflation, has become one of the central bank's primary concerns since last year.
Several officials will make public appearances this week, including Loretta Mester and Austan Goolsbee. Last week, Goolsbee said the Fed should reconsider its monetary policy after the banking crisis.