Ray V and Alan John
SINGAPORE/LONDON (Reuters) – The yen held near its highest level in more than four months on Wednesday, keeping the yen near its lowest level in decades, although the increased threat of currency intervention from Tokyo limited further declines in the Japanese currency.
The euro was steady at $1.0776, as was the pound at $1.2575, leaving the dollar index, which tracks the currency against six peers, unchanged on the day at 104.72, briefly rising above 105 in Tuesday.
Wednesday’s data, showing a surprise fall in euro zone inflation last month and bolstering arguments that the European Central Bank will start cutting borrowing costs, did little to rattle the single currency as markets were already confident of a rate cut in June.
The Japanese yen last traded at 151.7 per dollar, making little recovery from last week’s fall to a 34-year low of 151.975, as the Bank of Japan’s historic policy change underscored its exceptional status.
Although the Bank of Japan raised rates for the first time in 17 years, its policymakers’ push to move ahead with further hikes has dealt a blow to the yen, especially given the still wide gap between Japanese and U.S. yields.
Japanese officials have been trying for days to raise the currency, and the threat of intervention has provided stiff resistance to the US dollar.
“It certainly appears that the market is very afraid of the 152 (yen per dollar) level,” said Jane Foley, head of foreign exchange strategy at Rabobank.
She said she was also monitoring whether geopolitical tensions would affect the situation.
“On the gold and oil side, there is a sense that there is a safe harbor proposal. But the question is why doesn’t this impact the dollar more because yesterday the dollar fell against almost everything, and could it affect the yen or the Swiss currency? franc too?
The three currencies are generally benefiting from a flight to safety, but the Swiss franc is also under pressure, trading at its lowest level in months against both the dollar and the euro.
Gold is trading at record highs, partly due to geopolitical tensions, and oil is at its highest level since October. [GOL/] [O/R]
“I would argue that the attractiveness of the yield is what will make the dollar a more attractive safe-haven currency,” Foley added.
The benchmark 10-year US Treasury yield hit a four-month high of 4.405% on Tuesday amid another round of robust US economic data.
Manufacturing rose for the first time in a year and a half, and March saw a larger-than-expected rise in new orders for U.S.-made goods, while the labor market remained strong.
Traders expect the Federal Reserve to cut rates by about 70 basis points this year, less than the central bank has forecast as the full easing cycle is scheduled to begin in July.
Fed officials also made it clear that they are in no hurry to cut rates.
The greenback, which has been rocked by the greenback’s recovery, was last at 7.2357 to the dollar domestically, remaining near a 4.5-month low on Tuesday despite stronger Chinese manufacturing data and a services sector release on Wednesday .
Its offshore counterpart fell to 7.2596 per dollar.
“Market participants will continue to try to push CNH (USD) down due to the economic headwinds facing the Chinese economy. Fundamentals continue to suggest a weaker CNH is likely in the near term,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia. (OTS:).
The Australian and New Zealand dollars, which are often used as liquid substitutes for the yuan, have come under pressure.
Quotes fell 0.1% to $0.651, while the price fell slightly to $0.596.