USD Continues Recovery from Selloff, Yen Watched for Intervention

USD Gains for Third Consecutive Day

The dollar continued its recovery on Wednesday, gaining for a third day following a sharp selloff last week. Confidence is growing that the Federal Reserve has ended its interest rate hiking cycle.

Traders Alert for Yen Intervention

Traders are also remaining on alert for potential intervention in the Japanese yen as it holds above the 150 level against the dollar.

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Weaker Data Could Affect Dollar

Many economists and analysts expect the U.S. economy to slow in the fourth quarter, making further rate hikes less likely and denting the appeal of the greenback.

Transition in Dollar Trend

Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto, stated, “The dollar is vulnerable to weaker data going forward. We’re transitioning to a sort of sell dollar rallies environment, after the buy dollar dips trend that we’ve seen really since the middle of the year.”

Short-term Dollar Gain Expected

Despite expectations of a weaker dollar in the long term, the dollar may continue to gain in the short-term as it recovers from last week’s selloff, which was viewed by some as overdone.

Impact of Fed Chair’s Dovish Tone

The greenback suffered after Fed Chair Jerome Powell struck a dovish tone at the conclusion of the Fed’s two-day meeting last Wednesday, leaving interest rates unchanged. Powell’s upcoming speech on Thursday will be closely monitored.

Speculation on Future Rate Hikes

Futures point to a roughly 17% chance of another hike by January but are pricing in a 20% chance that rate cuts could come as early as March, according to the CME FedWatch tool.

Impact on Major Currencies

• The dollar was last up 0.10% at 105.63 against the yen.
• The euro fell 0.11% to $1.0687.
• The British pound was last down 0.17% at $1.2276.
• The Australian dollar fell another 0.17% to $0.6424.

Impact on Euro Zone

The euro was hurt by data showing that retail sales in September fell 0.3% month-on-month in the bloc, leaving the euro zone very close to recession.

Concern Over Yen Per Dollar

The Japanese yen stayed on the weaker side of 150 per dollar, heading back towards levels that have investors on watch for currency intervention.

Impact of RBA’s Interest Rate Hike

The Australian dollar slid 0.8% in the previous session after the Reserve Bank of Australia raised interest rates to a 12-year high but watered down its tightening bias to make it more conditional on incoming data.

Currency Bid Prices

• Dollar index: 105.6300
• Euro/Dollar: $1.0687
• Dollar/Yen: 150.8600
• Euro/Yen: 161.22
• Sterling/Dollar: $1.2276