Dollar Strengthens as Yen Weakens: The US dollar stood strong, nearing a two-week high as Treasury yields climbed, causing investor interest in riskier currencies to wane. Simultaneously, the yen breached the 150-per-dollar mark, stirring concerns about possible intervention.
The Japanese yen weakened, hitting a fresh one-year low of 150.48 per dollar, not far from the 32-year low of 151.94 per dollar it reached last year, prompting Japanese authorities to step in. Japanese Finance Minister Shunichi Suzuki warned against selling the yen, stating that authorities were closely monitoring market movements. However, he made no direct comment about potential intervention.
“Given the cap on Japanese yields, something had to give in the context of enduring dollar strength on the back of U.S. macroeconomic resilience,” said Nicholas Chia, macro strategist at Standard Chartered. Global interest rates surging are increasing pressure on the Bank of Japan to alter its bond yield control. A possible hike to the existing yield cap set three months ago is being discussed.
Japan’s low yields have made the currency vulnerable to short-sellers and funding trades, with the interest rate gap between Japan and the United States leading to persistent weakness in the yen. The yen has fallen by over 20% since the US Federal Reserve began rapidly raising rates to combat inflation in March 2022, while the Bank of Japan maintains its loose monetary policy.
Any judgment on the yen also needs to account for the central bank’s reaction function,” said Chia. “In other words, there is the risk of an earlier-than-envisaged policy shift by the BOJ, given its track record of surprising markets.
Also Read: Interest Rates Impact on Dollar and Yen: A Cautious Market Awaits Key Economic Data
US GDP data due later is a key event risk for the dollar/yen, with a strong report possibly pressuring US yields higher and leading to the yen testing new lows.
US benchmark 10-year Treasury yields edged higher, moving toward a 16-year peak briefly breached on Monday, and the 10-year yield was at 4.959% on Thursday.
The Australian dollar slid to a one-year low of $0.6271, down 0.49% at $0.6278, driven by expectations of further interest rate hikes after a surprising inflation reading.
Investors will closely watch the European Central Bank’s policy decision, with the euro touching a one-week low of $1.0542. The ECB is expected to keep interest rates unchanged at a record high but may discuss reducing its government debt portfolio as it combats inflation.
Sterling was last at $1.2081, down 0.23% on the day, having touched a three-week low earlier. Against a basket of currencies, the dollar was 0.188% higher at 106.75. The Canadian dollar fell 0.15% to 1.38 per dollar after the Bank of Canada left its key rate at 5.0% as expected but indicated the potential for more rate hikes.
In the world of cryptocurrencies, bitcoin rose 0.1% to $34,714.14, surging 15% this week on the speculation of an impending exchange-traded bitcoin fund.