The Dollar Slumps, Yen Warns of Intervention

The Dollar’s Weakness

The dollar was reeling on Wednesday after significant declines against the euro and sterling. Despite this, the yen remained at 34-year lows, prompting Japanese officials to issue intervention warnings.

Reasons Behind Dollar’s Decline

The dollar’s overnight losses were driven by strong European activity data and slowing U.S. business growth. Meanwhile, the Australian dollar capitalized on the weakened greenback due to better-than-expected local consumer price data.

Rally of the Australian Dollar

The Australian dollar surged to $0.65185, benefiting from a re-evaluation of the RBA’s monetary policy. This rally dashed hopes for rate cuts from the Reserve Bank of Australia in the near future.

The Dollar Index and Other Currencies

The dollar index, measuring the currency against major peers, was flat at 105.67, while the euro held steady at $1.0705 after seeing robust business activity growth in the eurozone.

Sterling’s Positive Performance

Sterling also saw gains after data showed rapid growth in British business activities. Bank of England Chief Economist Huw Pill hinted that interest rate cuts were not imminent. Sterling rose to $1.2455.

U.S. Economic Scenario

U.S. business activity slowed in April, with easing inflation rates offering slight relief for the Federal Reserve. Markets anticipate a 73% chance of a rate cut by September.

Intervention Warnings for Yen

Japanese officials expressed concerns about yen intervention as the currency hovered near 34-year lows. The Bank of Japan is expected to maintain policy settings despite recent interest rate hikes.

Future Outlook

The dollar reached a 5-1/2-month high last week, fueled by persistent inflation. Any intervention attempts could impact Japanese authorities’ credibility. The yen’s strength may persist until summer unless the Fed cuts rates in September.