The dollar rose against other major currencies on Friday and hit a new eight-week high above the yen, as data showed the strength of the U.S. economy and the Federal Reserve’s patient approach to rate cuts. of interest contrasts with that of their more pessimistic counterparts.
U.S. business activity rose to a 26-month high in June amid a rebound in employment, while price pressures eased sharply, suggesting the recent slowdown in inflation is likely to continue.
The dollar index, which measures the currency against six others, was last up 0.2% at 105.82. It had risen 0.41% overnight, erasing the week’s declines, following a second consecutive rate cut by the Swiss National Bank and hints from the Bank of England of a cut in August.
“Following disappointing (Purchasing Managers’ Index) numbers out of Europe, stronger-than-expected US PMIs have revived the ‘US economic exceptionalism’ narrative. and could close the door on any possibility of a July rate cut by the Fed,” said Matt Weller, head of market research at StoneX, Grand Rapids, Michigan.
Weller said the yen will be a key point for currency traders to watch over the next week.
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 Treasury report covers the four quarters through December 2023 and does not include April and May of this year, when, according to the report, Japanese authorities intervened to shore up the yen.
“USD/JPY closed at a 34-year high yesterday, one hour after the US Treasury added Japan to its currency watch list,” Weller said. “This serves as a diplomatic warning against further intervention by the Bank of Japan and (the Ministry of Finance) and, combined with today’s better-than-expected US data, could push USD/JPY back towards 160.00 below “.
The yen has been under pressure following the Bank of Japan’s decision last week to delay tapering bond-buying stimulus until its July meeting. The dollar last traded 0.3% stronger at 159.37 yen.
The Bank of Japan, at the behest of the Finance Ministry, spent about 9.8 trillion yen ($61.64 billion) to lift the currency from a 34-year low of 160.245 per dollar, hit on April 29.
Japan’s top foreign exchange diplomat, Masato Kanda, declared Friday that Tokyo is ready to take new “decisive” measures against “speculative and excessive volatility.”
The dollar held its near five-week high against sterling, which is still down 0.14% at $1.2639, its lowest level since around 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 $1.0694 after a series of preliminary surveys for June showed service sector activity in France contracted this month, while activity across the German economy slowed. .
“We’ve had some slightly weaker PMIs coming out of Europe and the UK, but election noise in France and the UK is probably distorting these numbers and has muted the market reaction to these numbers,” said Erik Nelson, macro strategist at Wells Fargo in London.
