Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The dollar rose across the board on Wednesday, rising against the Japanese yen to its highest level since mid-1990, after U.S. inflation rose more than expected in March, pushing back the expected timing of a first cut. rates for September. from June.
Market participants are also closely watching for any signs of intervention by the Japanese authorities to strengthen the yen.
The yen’s big gain came after data showed the consumer price index (CPI) rose 0.4% month on month in March, compared with the 0.3% rise expected by economists polled by Reuters. On an annualized basis, the consumer price index rose 3.5% versus forecasts for a 3.4% rise.
Excluding volatile food and energy components, core inflation rose 0.4% month-on-month in March, compared with expectations for a 0.3% rise. It grew 3.8% annually, versus projected growth of 3.7%.
Following the CPI data, traders cut bets that the Federal Reserve will cut interest rates in June to 19% from 57% late Tuesday, according to FedWatch CME. They now see a 72% chance of a rate cut at the September meeting, based on interest rate futures prices.
Fed fund futures also cut the number of rate cuts this year to fewer than two from three or four a few weeks ago.
“The core inflation rate has accelerated for four straight months…it’s possible you’ll see some slowdown later in the year, but given the fact that you’re starting at a higher rate, you’re going to need some really weak numbers and more time to stay on top of it.” “I’m convinced that inflation is trending downward after what seemed to happen last fall,” said Joseph LaVorgna, chief U.S. economist at SMBC Nikko Securities in New York.
“This means the timing of the Fed’s policy easing will be delayed.”
At midday, the index measuring the value of the U.S. dollar against six major currencies was up 1.1% at 105.22. It had previously risen to its highest level since November.
Meanwhile, the euro fell 1.1% to $1.0737.
Against the yen, the dollar was last up 0.7% at 152.895 yen, touching 152.95, its highest level since mid-1990.
Traders have been on alert for weeks about possible intervention from Tokyo authorities, as even Japan’s historic exit from negative rates failed to lift the currency.
Japan intervened in the foreign exchange market three times in 2022, selling the dollar to buy the yen, first in September and then in October when the yen fell to a 32-year low of 152 per dollar.
The yen has been under pressure for years as interest rates in the U.S. rose and those in Japan remained near zero, pushing cash out of the yen and into dollars to earn the so-called “carry.”
“The dollar-yen is more sensitive to long-term rates than the euro-dollar and is more volatile at current levels, while the leveraged community has a large net long position that could trigger acceleration in either direction if there is a big surprise,” Societe Generale (OTC:) analysts said in a note.
Yen futures data from the CFTC showed that non-commercial short positions rose to 143,230 contracts on April 2, the most since December 2023.
“I’d say there’s a 30% chance of Japanese intervention this month. Today’s move, it’s a fast move down, it just doesn’t seem like the right time to fight it,” said Adam Button, chief currency analyst at FOREXLIVE.
“Japan does not want the yen to weaken further, but this is a fundamental move to strengthen the US dollar. I don’t see any argument for Japan to oppose this move right now, it’s not a move in the yen, it’s a move in the broad US dollar. move.”