The dollar rose against the euro and pound on Thursday after a US Federal Reserve policymaker said he was in no hurry to cut rates, while traders braced for key economic data and hesitated to move on the yen fear of Japanese intervention.
Japan’s currency was steady at 151.42 per dollar, after trading just below the 152 mark on Wednesday at its lowest since 1990, before Japan’s top monetary officials suggested they were ready to intervene to prevent further declines.
The euro was last down 0.33% at $1.0792, a five-week low, and the pound was down 0.25% at $1.2609. The dollar index rose 0.16% to 104.6, the highest level since mid-February.
During late U.S. trading hours on Wednesday, Fed Governor Christopher Waller said recent disappointing inflation data is an argument for the U.S. central bank to hold off on cutting its short-term interest rate target.
Market expectations for the first rate cut at the June Fed meeting have declined somewhat. At current prices, the chance is 60%, compared to 67% this time last week, according to the CME FedWatch tool.
“Waller is one of the Fed’s more important policymakers and while I don’t see this as a big move, the comments have given some momentum to the market, which has been stuck in very tight trading ranges,” said Lee Hardman, senior currency strategist at MUFG.
Traders are now awaiting US core PCE inflation data, expected on Friday, and an appearance from Fed Chairman Jerome Powell.
WATCH INTERVENTION
Should inflation numbers surprise on the upside and support the dollar, the most dramatic impact could be on the yen. Market participants say there is a dense tangle of options limiting moves in the dollar/yen around the 152 level, so a breakout could trigger more significant moves.
While there may be some trading right now to defend a move to 152 yen per dollar, Friday’s inflation data poses a significant risk, said Takeshi Ishida, a currency strategist at Resona Holdings.
“Once the dollar/yen hits 152 yen, I think there will probably be a sharp upward move, and that’s when intervention could happen.”
Japanese authorities held a meeting Wednesday on the currency’s weakness and increased their verbal warnings, leaving the market on the lookout for signs that words are backed by action.
Japan intervened in the foreign exchange market three times in 2022 by selling the dollar to buy the yen, the first time in September and the second time in October when the yen slid to a 32-year low of 152 against the dollar.
A summary of views at the Bank of Japan’s March meeting released Thursday gave the currency little support, showing that many policymakers saw the need to slowly unwind ultra-loose monetary policy.
The Easter holidays in many markets are also complicating matters.
“That works to Japan’s advantage as it keeps an extra layer of uncertainty as liquidity appears to be thin and so investors may be nervous about holding yen shorts going into the holiday season,” MUFG’s Hardman said.
Meanwhile, China’s central bank pegged the yuan at its widest in almost five months against the Reuters estimate as authorities step up efforts to prevent sharp falls in the currency. The yuan fell to a four-month low last Friday.
The onshore yuan was largely flat at 7.2277 per dollar, while the offshore yuan was at 7.2591 per dollar, also little changed.
The Swiss franc remained under pressure and the dollar rose 0.24% to 0.9059 francs, just below a four-month high reached a day earlier.
The Aussie fell 0.6% to $0.6495. In addition to Waller’s comments, data from Australia showed consumers continued to struggle as retail sales rose 0.3% in February, missing forecasts.
Tags: Dollar Gains Inflation Data yen lookout intervention March
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