The dollar hit an eight-week high above 159 yen on Friday and hit its highest level in almost five weeks against the pound, as the Federal Reserve’s patient approach to cutting interest rates contrasts with more moderate positions elsewhere.
The dollar index, which measures the currency against six other currencies, rose 0.41% overnight, erasing the week’s declines, following a second successive rate cut by the Swiss National Bank and hints from the Bank of England from a reduction in August.
Meanwhile, the yen remained under pressure following the Bank of Japan’s decision last week to delay tapering bond-buying stimulus until its July meeting.
“Traders punished the yen with renewed enthusiasm,” pushing it above the closely watched 159 per dollar level on Friday, said Tony Sycamore, market analyst at IG.
The Bank of Japan, at the request of the Japanese Ministry of Finance, spent some 9.8 trillion yen ($61.64 billion) to lift the currency from a 34-year low of 160.245 per dollar, reached on April 29.
The US Treasury on Thursday added Japan to a list of countries it is monitoring for possible labeling as a currency manipulator. China is among others on the list.
The period covered by the report covers the four quarters through December 2023 and does not include April and May of this year, when Japanese authorities are believed to have intervened to shore up the yen.
Still, Japan’s top currency diplomat, Masato Kanda, declared Friday that Tokyo is willing to take new “decisive” measures against “speculative and excessive volatility.”
“The market is getting nervous once again, you can see it in today’s sell-off. It’s not about market fundamentals, it’s just that the market is nervous about these levels,” said City Index market strategist , Fiona Cincotta.
“The concern is whether and when the Japanese authorities will intervene – and ‘when’ is probably more likely at these levels,” he said.
The yen was stable at 158.97. It weakened to 159.12 early in the session.
The dollar index rose 0.2% to 105.79, heading for a flat end to the week after two consecutive weeks of gains.
The pound fell to $1.2637, near its lowest since mid-May. The Bank of England left rates on hold this week, but some policymakers said the decision not to cut rates was “finely balanced.”
Data on Friday showed that UK retail sales rose more than expected in May, largely due to milder weather.
Another report showed British business growth slowed in June to a seven-month low, weighed down by jitters ahead of the July 4 general election.
The euro fell 0.1% to $1.0686 after a series of preliminary surveys for June showed service sector activity in France contracted this month, while activity across the German economy slowed. .
Federal Reserve policymakers kept monetary policy unchanged at their June meeting and reduced to one earlier forecast for three quarter-point cuts this year, even though inflation has cooled and the labor market has slumped. has relaxed.
“The resilience of the US economy has given the Federal Reserve a unique position, allowing the US central bank to use higher interest rates as a tool to combat inflation more quickly than it could otherwise do,” said James Kniveton. , corporate currency expert at Convera.
“With other major central banks adopting more dovish stances, this has the potential to continue supporting the dollar in the short to medium term.” ($1 = 158.9900 yen)
