The US dollar remained strong today, reaching a near three-week high, as Treasury yields rose and demand for riskier currencies waned. Meanwhile, the Japanese yen briefly surged after breaching ¥150.50 per dollar, causing concern among traders about possible intervention.
The yen weakened to hit a fresh one-year low of ¥150.78 per dollar, close to the 32-year low of ¥151.94 it reached in October last year, prompting Japanese authorities to intervene in the currency market. However, it quickly rebounded to its current level at ¥150.50, leading analysts to believe that it was not a result of intervention.
“The move was less than one big figure. That tells me it wasn’t intervention,” said Niels Christensen, chief analyst at Nordea. He added, “If it had been intervention, we would have seen a bigger move.”
Japanese Finance Minister Shunichi Suzuki warned traders against selling the yen again and stated that authorities were closely monitoring the situation. However, he did not directly comment on the possibility of intervention.
The Bank of Japan is facing increasing pressure to change its bond yield control next week due to a recent surge in global interest rates. There are discussions about the possibility of hiking the existing yield cap set three months ago. The disparity in interest rates between Japan and the United States has made the yen vulnerable to short-selling and funding trades, resulting in its persistent weakness.
Since the US Federal Reserve began rapidly raising rates in March 2022 to combat inflation, the yen has fallen over 20%. In contrast, the Bank of Japan has maintained its ultra-loose monetary policy, making it an outlier among central banks.
The upcoming release of US GDP data on Thursday is seen as a potential event risk for the dollar-yen exchange rate. Carol Kong, a currency strategist at Commonwealth Bank of Australia, explained that a strong report could increase pressure on US yields and potentially lead to the yen testing new lows.
US benchmark 10-year Treasury yields edged higher, moving towards a 16-year peak above 5.0% that was briefly breached on Monday. The 10-year yield stood at 4.9616% today.
Investors are also closely watching the policy decision from the European Central Bank (ECB) later in the day. The euro touched a week low of US$1.0533 earlier in the session but recovered slightly to US$1.0545. The ECB is expected to keep interest rates unchanged at a record high, ending a 15-month streak of hikes. However, it may discuss reducing its large portfolio of government debt more quickly to address excessive inflation.
Nordea’s Christensen believes that the ECB will signal that they are finished with rate hikes for now. He stated, “The euro is already on the defensive this morning, and I think, if anything, the ECB will be more on the dovish side.”
The British pound fell 0.2% to US$1.2081, hitting a three-week low of US$1.2070 earlier in the session. The US dollar rose 0.2% against a basket of currencies to 106.75 after reaching a near three-week peak of 106.88.
In other currencies, the Australian dollar slid to a one-year low of US$0.6271 before stabilizing at US$0.6309. The New Zealand dollar touched a near one-year low of US$0.5774 and remained unchanged at US$0.5802. The Canadian dollar also fell 0.1% against the greenback, reaching 1.38 per dollar after the Bank of Canada held its key overnight rate at 5.0% as expected but left the possibility of further rate hikes open to combat inflation.
Next week, both the Federal Reserve and the Bank of Japan will hold meetings.
In the world of cryptocurrencies, bitcoin rose 0.6% to US$34,714. The cryptocurrency has surged 15% this week amid speculation of an impending exchange-traded fund for bitcoin.
More detail via Malay Mail here… ( Image via Malay Mail )
