Dollar hits 12-year high against yen; further gains likely

The dollar hit a fresh 12-year high against the yen in Asian trade, briefly nudging above the ¥125 mark, before falling back in the European session.

The greenback hit ¥125.07 in early trade - its highest level since December 2002.

The dollar's strength came after an encouraging report on US manufacturing from the Institute of Supply Management and solid consumer spending numbers on Monday, which have underpinned expectations that the Federal Reserve will hike interest rates this year.

Looking ahead, the dollar is expected to continue strengthening.

“The conditions are in place for a summer dollar rally, but there’s catch – it all hinges on data in the next two weeks,” said Kit Juckes, macro strategist at Societe Generale.

“If the May data round, which kicked off strongly with the rise in the manufacturing ISM to 52.8, shows further strength in tomorrow’s non-manufacturing figures and then in the Labor Report on Friday, all eyes will turn to the FOMC meeting on June 17,” he said.

“A signal that the Fed is on track for a September rate hike unless things change, would give the dollar a big push,” added Juckes.