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Feb 10 (Reuters) – The dollar ended the week on a strong note as Friday’s US data pointed to higher inflation heading into next Tuesday’s pivotal CPI report.

The latest inflationary pangs contributed to the dollar-supportive environment following last Friday’s extremely strong payrolls data, which lifted Fed rate hike expectations.

Risk aversion also supported the dollar through safe-haven flows tied to worries about the tenacity of global inflation and geopolitical and economic risks related to Russia and China.

Early and broad yen gains linked to reports of an unexpected pick to take over BoJ leadership, as its yield curve control policy remains under pressure, faded, particularly against the dollar.

The yen pullback began after Kazuo Ueda, the supposed government pick to replace Governor Kuroda, said the bank’s current policy was appropriate.

USD/JPY rallied back to roughly flat after being down more than 1% initially on the BoJ intrigue.

EUR/USD fell 0.6% after probing the pivotal 55-day moving average support at 1.0682 and making a marginal new post-payrolls low despite 2-year bund-Treasury yield spreads rising 11bp, in part because Europe’s inflation uptrend remains more of an economic threat than a euro plus via less negative yield spreads.

And the hot US payrolls report received some tangential corroboration after Canada’s jobs data smashed expectations. USD/CAD fell 0.7% on the report.

Adding to the angst in Europe are concerns about the direction of Russia’s war against Ukraine, its 5% oil output cut and less optimism regarding China’s reopening and relations with Washington.

Record high Norwegian inflation and core inflation at 6.4% year-on-year versus 6.1% forecast reinforced the region’s inflation challenges.

Sterling fell 0.5%, unaided by flat UK GDP.

Tuesday’s US CPI and an expected BoJ leadership announcement that day top upcoming events risks. Wednesday brings US retail sales.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

LONDON/SINGAPORE, Feb 10 (Reuters) – Japanese markets reacted with shock on Friday to news that the government had picked academic Kazuo Ueda to be the next central bank governor, but investors quickly snapped up the yen and sold bonds on expectations he will end years of super-easy monetary policy.

The yen jumped 1% to flirt with 130 per dollar minutes after Reuters reported the government will nominate Kazuo Ueda, a former member of the central bank’s policy board, as the Bank of Japan’s next governor.

While Ueda is considered an expert on monetary policy, most analysts said the appointment of the 71-year-old was totally unexpected — he was not even considered a dark horse candidate — and could signal a move to phase out ultra-low interest rates sooner than initially expected.

Japanese government bonds (JGBs) fell, with 10-year yields hitting the 0.5% top end of policy band that is the crux of incumbent Governor Haruhiko Kuroda’s trademark yield-curve-control policy.

Investors’ interpretations of the appointment and the market moves were mixed as they tried to parse Ueda’s recent commentary.

“He’s been not terribly positive on Abenomics from the start. From about 2016, he was saying that it had basically failed, and the super large monetary easing was causing problems with the bond market, and these sorts of things,” said James Malcolm, UBS’s London-based head of currency strategy.

“I’m surprised that dollar yen is not 129 already. Maybe that’s just a result of people not knowing who these characters are.”

Some analysts thought markets were merely reacting to the fact that Deputy Governor Masayoshi Amamiya, who was until Friday viewed as the lead contender for the top job and had helped frame its ultra-loose policy, hadn’t been picked.

“There is probably a lack of clarity on Ueda’s policy leanings at the moment, but at least it is clear that Amamiya (who is seen as a dove) is out. That removes one of the headwinds for the yen,” said Christopher Wong, currency strategist at OCBC in Singapore.

“The knee-jerk reaction in yen appreciation is more of a reaction to Amamiya being out of the race.”

As per government sources, Ryozo Himino, former head of Japan’s banking watchdog, and BOJ executive Shinichi Uchida are being nominated as deputy governors – implying a major change of guard at the BOJ by the time Kuroda steps down in April.

The nominations need approval by both houses of parliament, which is a near certainty given the ruling coalition’s solid majority.

NEW LOOK, NEW POLICY

For some market participants, the new faces at the BOJ hinted at the need for change in an establishment that has struggled to distance itself from the controversial yield control policy without reputational damage.

Even after a near-decade of quantitative easing and yield control, Japan has not managed to achieve its 2% inflation target. Meanwhile, the BOJ’s increasingly large bond-buying operations have sapped bond markets of liquidity and distorted the yield curve.

“This is a surprise move. I think the new team means that they will redesign the BOJ’s monetary policy, not maintain the current policy,” said Takayuki Miyajima, a senior economist at Sony Financial Group in Tokyo. “That is why the 10-year JGB yield hit 0.5%.”

Still, analysts pointed to some of Ueda’s comments in the past that were seen as inconclusive about his leanings: his urge for caution in raising rates, his views that the Federal Reserve had been late with policy tightening in 2022 and his concern for the impact of inflation on Japan’s giant pension fund.

“The apparent choice for governor now – Ueda – is somewhat of a wild card for the markets,” said Stuart Cole, head macro economist at Equiti Capital.

“So we could yet be in for a volatile ride in the yen if he turns out to be singing from the same hymn sheet as Kuroda.”

(Writing by Vidya Ranganathan, additional reporting by Kevin Buckland and Junko Fujita in Tokyo, Amanda Cooper in London, Bansari Mayur Kamdar in Bangalore; Editing by Kim Coghill)

Feb 9 (Reuters) – The dollar index fell on Thursday as the lift from Friday’s hot jobs report and Fed policy comments faded before the Feb. 14 US CPI that will guide market positioning for future rate hikes, which has already reached officials’ median 5-5.25% expectations.

A rise in US jobless claims after 9-month lows the prior week and another Fed speaker endorsing a more measured pace of rate hikes to tame inflation nW1N33R03E produced fleeting session lows in Treasury yields and the dollar. But both recovered with the pending CPI threat and 30-year afternoon auction prepping.

EUR/USD was up 0.25% ahead of the New York close, well off the 1.0791 high by the 10-day moving average and Monday’s 1.0800 peak.

That followed Germany’s belated release of January inflation data that failed to include a core reading and was skewed by re-basing and re-weighting.

Sterling rose 0.42%, but early risk-on gains were trimmed after Treasury yields recovered. Its rebound was capped near 1.2200 and ahead of Friday’s UK GDP report.

USD/JPY recovered most of its earlier losses with help from rebounding Treasury yields after earlier making new lows for the week but failing to attract much follow-through selling.

Yen traders are also focused on next week’s nomination of new BoJ leadership amid persistently rising inflation that the Japanese central bank’s embattled JGB yield cap policy looks ill-equipped to handle.

The trade-offs between tighter policy that supports the yen and reduces imported inflation versus the negative impact on Japan’s exporters, value of foreign sales and investments, as well as the government’s enormous debt-to-GDP ratio, argue against a rapid removal of ultra-easy policies.

The biggest dollar losses were against Swedish crown after the Riksbank raised rates 50bp, explicitly meant to underpin the crown, which gained 2.5% against the dollar.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)