Alan John and Ankur Banerjee
LONDON/SINGAPORE (Reuters) – The Japanese yen fell to its weakest in four weeks against the U.S. dollar on Wednesday as U.S. bond yields rose as calm markets prompted investors to resume carry trades, while the euro weakened after data on inflation in Germany.
The dollar hit 157.41 yen early Wednesday, slowly returning to levels that led to bouts of likely intervention from Tokyo in late April and early May, although rising much more slowly than last month.
The price was last seen at 157.10 yen, stable throughout the day.
“Across Asian currencies overall, this post-CPI rally is starting to fade as expectations of US policy easing decline and some volatile bond auctions send yields back up, putting pressure on the yen,” said Simon Harvey, head of foreign exchange. . analysis in Monex Europe.
Slightly softer US consumer price inflation data weakened the dollar across the board this month. However, U.S. Treasury yields have since resumed their rise, with the 10-year yield hitting its highest level in nearly four weeks at 4.57%.
The drivers were a weak two-year and five-year bond auction that raised doubts about demand for U.S. government debt, as well as data on Tuesday showing U.S. consumer confidence unexpectedly improved in May.
The dollar rose 0.09% against the offshore-traded yuan at 7.270. [CNY/]
“Continued RMB weakness is weighing on G10 currencies. Today’s Australian inflation data should have been extremely positive for the Australian dollar,” Harvey said.
The China-exposed dollar was unchanged at $0.6653 that day, even after Australian consumer price inflation unexpectedly rose to a five-month high in April, raising risks that the next move in local interest rates could be higher . [AUD/]
There has also been a carry trade for the yen, where investors borrow in low-yielding currencies to invest in higher-yielding currencies.
“The yen remains under significant downward pressure and carryover appetite is elevated due to low exchange rate volatility. In recent days it has broken the 170 level on a more sustained basis for the first time ever, and has also broken the 200 level for the first time since 2008,” said Derek Halpenny, head of global markets research EMEA at MUFG.
EURO IS WEAKENING
The euro weakened after regional inflation data in Germany showed monthly inflation in major regions was low, although higher year-on-year. The single currency was last down 0.2% at $1.0838.
It was also lower against the pound, falling 0.3% to 84.84 pence, its lowest level in almost two years.
Germany will release its national inflation data later on Wednesday, hinting at Friday’s eurozone report. However, the data could be overshadowed by the release of US PCE inflation data, the Fed’s preferred measure, due the same day.
The euro is still set to rise 1.6% in May, its first monthly gain this year.
Against the dollar, the pound was unchanged at $1.2762, having hit a two-month high the day before, lifting the pound 0.1% to 104.77.
($1 = 157.3100 yen)