Authors: Alden Bentley, Samuel Indyk and Ankur Banerjee
NEW YORK/LONDON (Reuters) – The dollar weakened from a near eight-week high on Monday, with investors once again on alert for intervention to support the yen after the Japanese currency flirted with the 160-per-dollar level that had previously sparked verbal warnings from the Japanese authorities.
In early trading, the dollar/yen hit a high of 159.94, the highest since April 29, when the yen hit a 34-year low of 160.245, prompting Japanese authorities to spend about 9.8 trillion yen to support the currency.
It briefly fell to 158.75 per dollar during the European morning and was last 0.28% weaker at 159.35.
“It certainly didn’t look like an intervention… but it nonetheless speaks to how nervous the market is likely to be at the prospect of intervention,” said Michael Brown, senior research strategist at Pepperstone.
“I think that unless any further weakening is of a particularly sudden or chaotic nature, it is unlikely that the Ministry of Finance will step in just yet.”
Earlier, Japan’s top currency diplomat, Masato Kanda, said authorities would take appropriate action in the event of excessive currency movements and that adding Japan to the U.S. Treasury’s monitoring list would not limit their actions.
The yen has come under renewed pressure following the Bank of Japan’s (BOJ) decision this month to postpone a reduction in bond-buying stimulus until its July meeting. In June it fell by 1.5%.
A summary of views presented Monday at the BoJ’s June policy meeting showed some policymakers were calling for timely interest rate increases, seeing the risk of inflation exceeding expectations.
The yen, which is highly sensitive to U.S. Treasury yields, has fallen more than 10% against the dollar this year, hurt by the wide spread between interest rates in Japan and the United States.
“We’re all trying to figure out whether the MoF might have a specific level of defense in mind, or whether it comes down to overall market conditions,” said Brian Daingerfield, currency strategist at Natwest Markets in Stamford. Connecticut.
THE INFLATION TEST IS COMING
The focus this week will be Friday’s release of the Personal Consumer Expenditures (PCE) price index, which the Federal Reserve uses to assess progress in reducing inflation to its 2% target.
The number indicating a weakening of price pressure will likely strengthen bets on an interest rate cut in September, which futures contracts currently value at 70%.
The dollar rate, which measures the greenback against a basket of currencies including the yen and euro, fell 0.41% to 105.45, rebounding from a nearly eight-week high of 105.91 it hit last week.
The next topic this week will be politics. The first US presidential debate between President Joe Biden and his predecessor Donald Trump will take place on Thursday after US markets close.
“There’s certainly a lot of interest in whether the dollar is specifically mentioned or not,” Daingerfield said. “We know that former President Trump sometimes criticized the value of the dollar as being too strong.”
The first round of elections in France will take place on Sunday.
“You will see a lot of defensive positions in the first round of the French elections and the US presidential debate,” said Simon Harvey, head of currency research at Monex.
The euro, which has been under pressure since French President Emmanuel Macron called early elections earlier this month, rose 0.44% to $1.0738 but was still down about 1% in June.
A poll published on Sunday shows that the far-right National Rally (RN) party and its allies are leading in the first round of the French elections, winning 35.5% of the expected votes.
RN lawmaker Jean-Philippe Tanguy, widely seen as the most likely candidate to head the finance ministry if the party wins and forms a government, told Reuters the RN government would stick to European Union fiscal rules.
The pound sterling strengthened by 0.28% at $1.268. The Australian dollar strengthened 0.18% against the dollar to USD 0.6651 and strengthened by 0.16%.
Meanwhile, the spot yuan was trading at 7.2585 per dollar, near a seven-month low, weighed by forceful dollar strength and concerns about the weakness of the world’s second-largest economy. [CNY/]
In cryptocurrencies, bitcoin fell to its lowest level since May 10, falling 4.52% to $61,267.00. fell 5.98% to $3,310.26.
