The dollar index fell on Wednesday, providing relief for the yen as the increased threat of currency intervention by Tokyo stemmed further declines in the Japanese currency.
The dollar index was last down 0.496% at 104.25, after moving lower all day as the yen stabilized.
Federal Reserve officials, including Chairman Jerome Powell, in their remarks on Wednesday
emphasizes the need
that more debate and data are needed before cutting rates, a move expected by financial markets in June.
“There wasn’t a big change in tone, but I think he’s trying to tell market participants that they need to look through the first year’s data and assess inflation and growth trends from a long-term perspective,” said Karl Schamotta, chief market strategist at Corpay.
The dollar this week hovered around highs not seen since November, thanks to yet another set of resilient US economic data.
Manufacturing is growing for the first time in 1-1/2 years and new orders for US manufacturing goods rose more than expected in March, while the labor market remained resilient.
Traders expect about 70 basis points of Fed rate cuts this year – less than the central bank’s forecasts – with the start of an easing cycle fully priced in for July.
The Japanese yen was last worth 151.665 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. The price fell earlier on Wednesday to 151.955.
“I think there is a heavy level of option defense going on with strikes at that 152 mark. Market participants have an incentive to act against any move through that level,” Schamotta said.
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 September and October of 2022, selling the dollar to buy the yen as it slid to a 32-year low of 152 against the dollar.
Elsewhere, the euro rose 0.6% to $1.0834, while the pound rose 0.58% to $1.2652.
Data released Wednesday showing a surprising decline in
inflation in the eurozone
last month, which confirmed the case for the European Central Bank to start cutting borrowing costs, brought little change to 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 7.2320 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 stable at 7.2481 per dollar.
