The US Dollar saw a modest recovery on Wednesday after the significant declines against the Euro and Sterling the previous day. This movement came amidst warnings from Japanese officials about the Yen nearing 34-year lows.
Dollar Index Edges Up
The dollar index, which measures the currency against six major peers including the euro, sterling and the yen, gained a modest 0.2% to 105.85. It then fell to 105.59, its lowest since April 12, before regaining some gains.
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Euro and Sterling Movement
The euro slipped 0.2% to USD 1.0684 after rising 0.4% on Tuesday, driven by strong European activity data that suggested accelerated growth in the eurozone. Similarly, sterling slipped 0.1% to USD 1.2437 after a 0.8% jump in the previous session, boosted by strong British business activity growth and comments from Bank of England chief economist Hugh Pill.
Expectations on U.S. Rate Cut
According to CME’s FedWatch tool, market expectations for a US rate cut by September were 67%. Analysts suggested that if US inflation continues to strengthen, the dollar may remain favorable in the short term.
While the dollar regained momentum, it approached a new 34-year high against the yen at 154.98. Japanese officials, concerned about excessive yen depreciation, issued warnings about potential interventions should the yen slide further.
Narrow Range and Intervention Risks
This week’s trading saw the dollar-yen pair moving in a narrow range between 154.50 and the recent high. Traders remained cautious, aware that a push above 155 could prompt dollar-selling intervention by Japanese authorities.
Intervention Caution
Japanese Finance Minister Shunichi Suzuki emphasized the likelihood of intervention, indicating discussions with U.S. and South Korean counterparts to address excessive yen movements. Senior ruling party official Takao Ochi suggested that a yen decline towards 160 might trigger intervention.
U.S. Business Activity and Inflation
In contrast with European indicators, the business activity in the United States decreased to the four-month minimum level in April due to the decrease in aggregate demand, yet, the inflation rate fell to some extent in April. Faster analysts pointed to the risk of focusing on weak polls only and forgetting about the possibility of influential future hard numbers.
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Bank of Japan’s Policy Meeting
The Bank of Japan is keeping the new policy unchanged and left all fee levels unchanged along with the volume of bond purchases during its meeting that ended Friday.
