Dollar gains, yen flirts with intervention levels

(Reuters) - The dollar loomed large over fragile financial markets on Tuesday, with worries about rising interest rates, global growth and geopolitical tensions unsettling investors, while the yen was testing levels that have prompted official intervention. The yen hit 145.80 per dollar overnight, just 10 pips short of the 24-year trough it made before the Japanese government stepped in to prop it up three weeks ago. Japan returned from a holiday on Tuesday and the yen sat at 145.65. Strong U.S. labour data and an expectation of inflation figures due on Thursday to remain stubbornly high have all but dashed bets on anything but high interest rates through 2023 and are driving the dollar back toward multi-decade highs.

Russia rained missiles upon Ukraine's cities on Monday in retaliation for blast that damaged the only bridge linking Russia to the annexed Crimean peninsula, with the escalation putting markets in a risk-averse mood. The risk-sensitive Australian dollar made a 2-1/2 year low of $0.6275 on Monday and hovered at $0.6296 early on Tuesday. Analysts at the National Australia Bank said the Aussie was the market's "whipping boy" in a sell off and that further lows were possible in the near term as sentiment is fragile.

The New Zealand dollar also made a 2-1/2 year low at $0.5545 on Monday and is close to breaking its pandemic trough, with weak data from China further souring the mood. "Our expectation for the world economy to enter recession next year is consistent with further gains in the dollar," said Commonwealth Bank of Australia strategist Carol Kong.

U.S. dollar index was up 0.053% at 113.12, not far off the 20-year high of 114.78 it touched late last month.

Britain's markets remain on edge and not exactly soothed by the Bank of England stepping up bond buying and finance minister Kwasi Kwarteng promising to bring forward some budget announcements.

Gilts sold sharply overnight and sterling was wobbly, sliding to a 10-day low of $1.1027 on Monday. The pound was up 0.28% at $1.1090 on Tuesday.

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Currency bid prices at 0029 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $0.9719 $0.9703 +0.15% -14.52% +0.9719 +0.9700

Dollar/Yen 145.5700 145.7300 +0.02% +26.73% +145.7350 +145.7600

Euro/Yen 141.47 141.39 +0.06% +8.56% +141.5200 +141.3600

Dollar/Swiss 0.9989 0.9994 +0.10% +9.66% +1.0002 +0.9994

Sterling/Dollar 1.1090 1.1060 +0.28% -17.99% +1.1091 +1.1056

Dollar/Canadian 1.3782 1.3780 +0.02% +9.01% +1.3795 +1.3771

Aussie/Dollar 0.6297 0.6299 -0.02% -13.37% +0.6300 +0.6284

NZ 0.5574 0.5566 +0.15% -18.56% +0.5574 +0.5559

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook in Sydney and Ankur Banerjee in Singapore; Editing by Lincoln Feast)

By Ankur Banerjee