Written by Brigid Riley
TOKYO (Reuters) – The dollar's strength kept the yen near a 34-year low on Tuesday, with investors keeping an eye on this week's major U.S. inflation report and the Bank of Japan's interest rate decisions, with increased scrutiny for intervention. There is.
The Japanese currency remained in a stalemate after hitting 154.85 yen on Monday, its lowest level since 1990, as the sharp interest rate differential between Japan and the United States is once again in the spotlight amid easing tensions between Iran and Israel.
Traders remain on guard as the yen depreciates towards 155.00 yen, a level that many participants believe will trigger fresh intervention by Japanese authorities.
Japan's finance minister said on Tuesday that talks with the US and South Korean finance ministers last week had laid the groundwork for Japan to act on excessive yen movements, the strongest warning yet of possible intervention. uttered.
The yen was buoyed by the latest statements from the authorities, and ended up rising slightly at 154.74 yen to the dollar.
However, there are doubts whether the Japanese government will act so close to the Bank of Japan's (BOJ) two-day policy meeting starting Thursday.
In new forecasts, the Bank of Japan expects inflation to remain near its 2% target for the next three years, suggesting it is prepared to raise rates again this year from their current levels of near zero.
Commonwealth Bank of Australia currency strategist Carol Conn said the weaker yen could force the central bank to “take a more hawkish tone”, bringing forward expectations for further rate hikes. He said it would support the yen.
“However, we expect USD/JPY to continue rising in the short term due to broad-based USD strength, and the possibility of currency intervention remains.”
The dollar's gains have been broad-based, with the dollar trending toward 5% this year.
The index fell below last week's five-month high of 106.10, after comments from Federal Reserve officials and the release of better-than-expected inflation data forced a decline in expectations for a rate cut. It was traded nearby.
According to the CME FedWatch tool, the market has priced in a 46% chance that the Fed will begin its first interest rate cut in September, and it hasn't lost much in November, at 42%. This was in sharp contrast to just a few weeks ago, when markets were expecting the start of a U.S. monetary easing cycle in June.
Investors will continue to watch the strength of the U.S. economy this week as first-quarter gross domestic product (GDP) data is released on Thursday and the personal consumption prices and expenditures (PCE) index, the Fed's preferred inflation measure, is released on Friday. This is an opportunity to evaluate the quality.
“If this week's GDP and PCE results heighten concerns about a stall in disinflation, it is possible that the market will further delay the expected first rate cut from September.Therefore, the risk is that U.S. yields will rise. “The US dollar is strong,” he said. Commonwealth Bank of Australia's Mr Kong said.
September has been floated as a new date for the Fed's first rate cut, but hopes remain that the European Central Bank (ECB) and Bank of England (BOE) will start cutting rates by mid-year.
This divergence puts both currencies at a disadvantage against the dollar.
The euro was little changed on Tuesday at $1.065575, its biggest monthly decline against the dollar since January.
The pound last traded at $1.23535, after falling to a five-month low of $1.2299 against the US dollar on Monday.
Ahead of this week's US PCE, PMIs to be released across Europe later on Tuesday could provide some relief.
“If the PMI data continues to show that conditions outside the US are improving, the dollar may remain subdued,” said Moh Siong Sim, currency strategist at Bank of Singapore.
Elsewhere, the Australian dollar rose to a one-week high of US$0.6465.
The Chinese yuan fell to 7.2455 yuan to the dollar, its lowest level since mid-November last year.
Among cryptocurrencies, Bitcoin fell 0.23% to $66,386.00 after hitting a one-week high of $67,267.34 in early trading.
(Reporting by Brigid Riley; Editing by Shri Navaratnam and Sam Holmes)
