The dollar led the way on Wednesday, holding the yen near multi-decade lows, although the heightened threat of currency intervention by Tokyo capped further declines in the Japanese currency.
The offshore yuan was little changed ahead of a key services sector survey due later this morning, as investors look to see if it reinforces China’s recent run of positive data for March.
The yen last traded at 151.48 per dollar, languishing from last month’s slide to a 34-year low of 151.975 in the wake of the Bank of Japan’s historic policy shift.
Although the BOJ raised rates for the first time in 17 years, policymakers’ commitment to slow further increases has hammered the yen, especially given the still wide gap between Japanese and US yields.
Japanese officials have continued their efforts to defend the currency for days, with the threat of intervention serving as stiff resistance for the greenback at the 152 yen level, seen by some market participants as a line in the sand.
“An immediate response to (yen) depreciation is more likely to come from the Treasury Department,” Morgan Stanley MUFG Securities strategist Koichi Sugisaki said in a note.
“We would not expect a unilateral JPY-supportive intervention to cause more than a temporary decline in USD/JPY, as such an action would say nothing about the future direction of monetary policy. That said, we do see potential for intervention to produce steeper than usual declines.”
Elsewhere, the euro fell 0.03% to $1.0767, although it was some distance from the more than one-month low reached in the previous session after the US dollar encountered some profit-taking late overnight .
Sterling fell 0.05% to $1.2572.
The dollar, which hit a nearly five-month high of 105.10 against a basket of currencies on Tuesday, was last steady at 104.78.
The greenback’s rise this week comes on the back of another set of resilient US economic data, which in March showed manufacturing growth for the first time in 1-1/2 years, a bigger-than-expected rebound in new orders for US manufactured goods, as well as a still resilient labor market.
“Markets have generally lowered their expectations for FOMC rate cuts in recent weeks given the strength of US economic data and the reluctance of FOMC officials,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (CBA). ).
“I think the dollar will hold up quite well in the short term, and that will be a headwind for the other major currencies.”
Traders now expect only about 70 basis points of Federal Reserve rate cuts this year – less than the central bank’s projections, with the start of an easing cycle not fully priced in until July.
Fed officials have also indicated they are in no rush to cut rates.
The Chinese yuan, which has been shaken by a resurgent greenback, was last at 7.2569 per dollar in the offshore market.
Its onshore counterpart had fallen to a 4-1/2-month low on Tuesday.
The yuan’s decline comes despite some better production figures at home. A private survey earlier this week showed China’s manufacturing activity grew at the fastest pace in 13 months in March, following equally positive official figures released over the weekend.
Analysts generally believe it is too early to celebrate positive results as the ongoing crisis in the real estate sector continues to be a major drag on the world’s second-largest economy and investor confidence.
“Market participants will still look to push CNH lower due to the economic headwinds facing the Chinese economy. Fundamental factors still suggest that a weaker CNH is likely in the near term,” CBA’s Kong said.
The Australian and New Zealand dollars, which are often used as liquid proxies for the yuan, have also come under pressure due to a stronger dollar and a weaker yuan.
The Aussie was 0.08% lower at $0.6512, while the kiwi fell 0.13% to $0.5962.
