The dollar index held close to its highest level in more than four months on Wednesday, leaving the yen near its lowest level in decades, although the increased threat of currency intervention by Tokyo capped further declines in the Japanese currency.
The Japanese yen last traded at 151.8 per dollar, having recovered little from last week’s slide to a 34-year low of 151.975 after the Bank of Japan’s historic policy shift only served to underline its outlier status.
Although the BOJ raised rates for the first time in 17 years, its policymakers’ pledges to implement further increases slowly have hammered the yen, especially given the still wide Japan-US yield gap.
The yen has been under pressure for years as US yields have risen and Japanese yields have remained near zero, causing cash to flow out of the yen into dollars to earn the so-called “carry.”
Japanese officials have continued their efforts to boost the currency for days, with the threat of intervention providing stiff resistance for the US dollar.
“If we get above 152, with or without intervention, the market will feel braver, and people are talking about that 155 zone. It’s hard to really talk about that as resistance because we haven’t seen that in a generation ,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
Japan intervened in the foreign exchange market three times in 2022, 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.
“It certainly seems like the market is very fearful of the 152 (yen per dollar) level,” said Jane Foley, head of FX strategy at Rabobank.
The dollar index was last 0.278% lower at 104.48, around its highest level since November. The benchmark 10-year U.S. Treasury yield hit a four-month high of 4.405% on Tuesday, thanks to another set of resilient U.S. economic data.
The manufacturing sector is growing for the first time in 1-1/2 years and March saw a bigger-than-expected rebound in new orders for US manufacturing goods, while the labor market remained resilient.
Traders expect about 70 basis points of Federal Reserve rate cuts this year – less than the central bank’s forecasts, with the start of an easing cycle fully priced in for July.
Fed officials have also indicated they are in no rush to cut rates.
Elsewhere, the euro was 0.36% higher at $1.0807, while the pound was 0.21% higher at $1.2605.
Data on Wednesday showed a surprising decline in
inflation in the eurozone
prompting the European Central Bank to cut borrowing costs have done little to upset the single currency, as markets were already confident of an ECB rate cut in June.
The Chinese yuan, which has been reeling from a resurgent U.S. dollar, last stood at 7.2356 per dollar in the onshore market, languishing near a 4-1/2-month low reached on Tuesday despite stronger Chinese manufacturing data and Wednesday’s publication on the services sector.
Its offshore counterpart remained steady at 7.2558 per dollar.
