Kevin Buckland
TOKYO (Reuters) – The U.S. dollar hovered near a 4-1/2-month peak against major currencies on Tuesday as traders rushed to abandon bets on the Federal Reserve’s first interest rate cut this year.
The dollar hit a new six-week high against the euro and was on track to do the same against sterling after US data on Monday unexpectedly showed the first rise in manufacturing since September 2022.
However, fears of intervention from Japanese officials slowed the dollar’s gains against the yen, even as long-dated U.S. Treasury yields, which the currency pair tends to track, jumped to a two-week high overnight. [US/]
Gold, which outperforms during periods of falling yields, is back on its feet after falling from a record peak on Monday.
The U.S. interest rate futures market is now pricing in a 61.3% chance of a Fed rate cut in June, up from about 70.1% a week ago, according to CME’s FedWatch tool.
“The divergence in sustained growth momentum in the US and the easing risk of a Fed rate cut amid subdued growth for other major FX markets suggests any dip in the DXY should be viewed as a buying opportunity,” Westpac head of FX strategy Richard Franulovich said, referring to the index. .
“Targets around 106 look feasible” for the dollar index, with 104.50 acting as support, he said.
The dollar index, which measures the currency against the yen, euro, pound sterling and three other currencies, rose 0.05% to 105.05 after earlier hitting 105.07, matching Monday’s high.
The euro fell 0.08% to $1.07335 after falling to $1.07295. Sterling fell 0.04% to $1.25455 after falling to $1.2541, just above the previous session’s low of $1.2540.
The Japanese yen strengthened slightly on Tuesday to 151.75 per dollar after falling to 151.79.
It was the weakest level since it hit a 34-year low of 151.975 on Wednesday, prompting Japan to step up intervention warnings. On Tuesday, Finance Minister Shunichi Suzuki confirmed he was not ruling out any options to respond to the currency’s erratic movements.
Japanese authorities intervened in 2022 when the yen fell to a 32-year low of 152 per dollar.
The yen’s fall came despite the Bank of Japan’s first interest rate hike since 2007 last month, with officials wary of further tightening amid a fragile exit from a decade of deflation.
“It’s not an easy task” for Japanese officials, who are “wary of painting themselves into a corner by drawing a line in the sand at 152,” said Nicholas Chia, Asia macro strategist at Standard Chartered (OTC:).
“The rationale for attacking and intervening in foreign exchange markets is mainly to buy time for the yen in the hope that the dollar’s strength will weaken and retreat.”
Elsewhere, the index fell to a 4-1/2-month low as a strong dollar offset sales of the U.S. currency by state-owned banks. The yuan fell to a low of 7.2349 per dollar on the day, its lowest level since November 2023.
The Australian dollar was unchanged at $0.6490 after falling to a nearly one-month low of $0.64815 on Monday.
The New Zealand dollar fell 0.1% to $0.5947, returning to a 4.5-month low of $0.59395 from the previous day.
rose 0.22% to $2,255.27 after falling from a record high of $2,265.49 in the previous session.
Leading cryptocurrency Bitcoin fell 4.4% to $69,707 after suddenly falling more than $3,000 in about 15 minutes.
“There was a weird little pocket of air that happened that coincided with the opening of trading in China,” with mainland blue chips starting the day weaker, said Kyle Rodda, senior markets analyst at Capital.com.
“We recently saw China open up as an intraday driver.”