Despite intervention risks, the dollar is close to its 32-peak against the yen while the pound is barely moving.
TOKYO – On Wednesday, the dollar edged higher from a two-week low against a basket of major rivals but remained near a 32-year high against the yen as traders evaluated the potential of faster Federal Reserve rate hikes against the improvement in risk sentiment.
This week, as the market processed the British government’s change in fiscal policy and the Bank of England’s decision not to sell any longer-duration gilts this year, the pound steadied in the middle of its trading range. The euro was circling very near a two-week high.
The dollar last traded at 149.18 early in Wednesday’s Asian session after climbing as high as 149.395 yen overnight for the first time since August 1990.
As the currency pair approaches the crucial psychological barrier of 150, traders are on high alert for the Ministry of Finance and Bank of Japan to enter the market once more. About a month ago, a cross of 145 prompted the first yen-buying intervention since 1998.
According to local media, Japanese Finance Minister Shunichi Suzuki stated on Wednesday that he was “meticulously” and “more frequently” monitoring exchange rates.
The dollar, which presently dominates as the preferred safe-haven currency, has fallen this week amid a bear rebound in global shares as a result of some encouraging earnings.
But the Fed’s fixation on high inflation—even at the risk of triggering a recession—continues to receive underpinning support from the market, which is pricing in two additional 75 basis point rises from the Fed this year.
Global bond market prospects are further clouded by the British government’s fiscal uncertainties.
The dollar index, which compares the greenback to six other currencies, including the yen, the pound, and the euro, moved up to 112.01 after overnight falling to its lowest level since October 6 at 111.76. At the end of September, it reached 114.78, a multi-decade high.
Sean Callow, a currency analyst at Westpac in Sydney, said: “We doubt that this is more than a slight respite in the dollar’s bull run.” He anticipates a retest of the peak into November.
Since the MOF has already crossed the Rubicon in regards to the yen, “intervention risk remains apparent, but its objective is unquestionably solely to limit the extent of speculative positioning rather than causing a persistent reversal,” Callow said.
Although “a figure as round as 150 will undoubtedly take some work to break short-term,” Callow continued, “it’s hard to see why the pair wouldn’t expand into the 150-155 level” given the BOJ’s status as the sole developed-market central bank still pursuing a zero interest rate strategy.
Sterling, meanwhile, increased by 0.27 percent to $1.1349 after falling by 0.34 percent the previous day. Following a Financial Times report that the Bank of England would defer quantitative tightening on Tuesday, the currency initially gained before falling as the Bank deemed the information “inaccurate.”
The BoE announced that while it will begin selling a portion of its enormous portfolio of British government bonds as of November 1st, it would not sell any longer-duration gilts this year, which have been at the center of market turbulence following the government’s “mini-budget.”
The euro was roughly flat at $0.9857, close below the high of $0.98755 set on Tuesday and last seen on October 6.
According to a Reuters survey of economists, the European Central Bank will raise interest rates by another 75 basis points on Thursday of the next week.
Following Tuesday’s shocking consumer price data, which increased expectations for further aggressive tightening by the Reserve Bank, the New Zealand dollar has continued to rise. Near the session’s two-week high of $0.5719, the currency last traded 0.19 percent higher at $0.5695.
Australian dollars were exchanged for $0.6322, up 0.12 percent from Tuesday.