Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The yen fell to its lowest level against the U.S. dollar in nearly 38 years on Wednesday, while wide interest rate differentials between the two economies in favor of the dollar continue to weigh on the Japanese unit, keeping investors on guard. to any sign of intervention by Japan to strengthen its currency.

The U.S. dollar rose to 160.82, the highest level since December 1986. The dollar was last up 0.7% at 160.697 yen. So far this year, the dollar has gained about 14% against the yen.

The euro also gained against the yen, reaching 171.79, its highest since September 1992. It was last up 0.3% at 171.625.

Low interest rates in Japan compared to interest rates in the United States weakened the yen. While Japan has raised interest rates to a range of zero to 0.1% this year, U.S. rates of 5.25% to 5.5% mean investors are turning to dollar assets in search of higher yields.

Investors take advantage of the wide difference in interest rates in the two countries by engaging in so-called carry trade strategies, in which investors borrow in low-yielding currencies to invest in higher-yielding currencies. Carry trades have become extremely popular as some countries have raised borrowing costs in recent years.

Analysts say investors are testing the resolve of Japan’s Ministry of Finance, which spent $62 billion to support the currency in tardy April and early May as the price fell above 160.

“Interventions generally slow the market, but it is difficult for them to significantly reverse the direction of the market unless there is a major change in the underlying monetary policy stance,” said Vasily Serebriakov, currency strategist at UBS in New York.

“For the dollar against the yen, a more aggressive increase in interest rates by the Bank of Japan or the Federal Reserve starting to cut interest rates would have a stronger impact. However, without both of these events, I’m not sure we could see a significant reversal. But intervention can certainly help limit its benefits.”

Japan’s top foreign exchange diplomat Masato Kanda on Wednesday stepped up his warnings about excessive currency moves, saying authorities were “gravely concerned and on high alert” over the yen’s rapid decline.

He noted that the current weakness of the yen is not justified.

However, there is a chance for another interest rate augment by the Bank of Japan at the end of July, which could support the yen.

The index, which tracks the currency against six other currencies, rose 0.4% to 106.05.

SOFT US HOUSING DATA, PCE NEXT

US novel home sales were weaker than expected. Sales of novel single-family homes in the U.S. fell to a six-month low in May, falling 11.3% to a seasonally adjusted annual rate of 619,000 units last month. The dollar reacted weakly to the data, adding to evidence that the world’s largest economy is slowing.

The next focus for the market will be Friday’s U.S. Personal Consumption Expenditures (PCE) Index, the Fed’s preferred measure of inflation. Investors are looking to see whether price pressures in the economy are headed in the right direction. A lower-than-expected number could boost bets on interest-rate cuts this year, providing some relief to the yen.

“PCE is less likely to produce outsized data than a CPI (Consumer Price Index) measure,” said Eugene Epstein, head of North America structuring at Moneycorp in New Jersey. “That said, in order to change the dynamics of rate cuts, there needs to be some really big variation in PCE.”

The euro fell 0.3% to $1.0679 after a European Central Bank policymaker raised the possibility of further interest rate cuts this year, a significantly different stance from the Fed’s Michelle Bowman.

ECB governing board member Olli Rehn told Bloomberg that two more cuts this year seem “reasonable.” That contrasted with Bowman, who said she didn’t expect any U.S. interest rate cuts this year.

Elsewhere, inflation in Australia accelerated to a six-month high of 4% in May, with investors scrambling to lock in prices with a robust chance of a further rate hike by November. The dollar rose 0.1% against the US dollar, reaching $0.6655.[AUD/]

The pound sterling fell 0.5% against the dollar to $1.2627.

The yuan has also been squeezed by the dollar’s stubborn strength, and China has appeared to signal some tolerance for a cheaper currency by gradually weakening the midpoint of the yuan’s daily trading range against the dollar.

The yuan, which has been hovering at the lower end of its range for months, fell to a seven-month low of 7.2671 per dollar on Wednesday. [CNY/] The dollar was last little changed at 7.2667.

Currency

offer

prices per hour

June 26

06:58

afternoon GMT

Description RIC Last US Pct YTD Pct High Low

to Close Change offer Offer

Previous

Session

Dollar 106.03 105.67 0.36% 4.60% 106.13 105.

index 6

Euro/Dollar 1.068 1.0715 -0.32% -3.24% 1.0718 $1.0

it’s 666

Dollar/Yuan 160.69 159.62 0.68% 13.94% 160.79 159.

No. 705

Euro/Yen 1.068​ 171.06 0.32% 10.26% 171.79 170.

86

Dollar/Sw 0.8972 0.8947 0.27% 6.59% 0.8983 0.89

it’s 48

Sterling sterling/ 1.2621 1.2686 -0.49% -0.8% 1.2694 $1.0

Dollar 666

Dollar/Katwa 1.3701 1.3659 0.33% 3.37% 1.3705 1.36

nadian 51

Australian/Up to 0.6649 0.6648 0.03% -2.46% 0.6689 USD 0.6

636

Euro/Switzerland 0.958 0.9583 -0.03% 3.17% 0.96 0.95

p 62

Euro/Christmas 0.846 0.8444 0.19% -2.4% 0.8463 0.84

linga 34

New Zealand 0.6076 0.612 -0.67% -3.8% $0.6128 0.60

Dollar/Up to 76

ll

Dollar/No 10.6817​ 10.6123 0.65% 5.39% 10.7127 10.5

road 994

Euro/Norway 11.4082 11.373 0.31% 1.64% 11.4332 11.3

it’s 39

Dollar/Sw 10.5726 10.5065 0.63% 5.02% 10.6175 10.4

ed 833

Euro/Sweden 11.2927 11.256 0.33% 1.5% 11.3251 11.2

in 399