Impact of Yen’s Rise on Dollar and Sterling
Yen’s Strength Affects Dollar and Sterling
The dollar weakened against the yen as Japan’s top currency officials cautioned against rapid and speculative yen movements. Meanwhile, sterling also fell after data revealed that UK inflation did not accelerate as expected in January.
Japan’s Response to Yen Appreciation
Japan’s Finance Minister Shunichi Suzuki emphasized the undesirability of rapid currency movements for the economy, indicating close monitoring of the market. The nation’s top currency diplomat, Masato Kanda, stated that appropriate actions would be taken on forex if needed.
Impact of Dollar-Yen Exchange Rate
The dollar experienced a 0.14% decline against the yen, reaching 150.57, not far from a three-month high. This year, the dollar has increased by approximately 10 yen in price. Japan intervened in the currency market three times in 2022 when the yen plummeted to 32-year lows near 152 yen to the dollar, conducting rare dollar-selling and yen-buying intervention.
Fed Expectations and U.S. Inflation
The dollar traded near three-month highs against major peers as traders adjusted their expectations for the first Federal Reserve interest rate cut in 2024 following higher-than-expected U.S. inflation figures. The U.S. consumer price index (CPI) in January gained 3.1% from a year earlier, leading to money markets pricing in no Fed cut in March and a 53% chance of a reduction in June.
Yen’s Correlation with U.S. Treasury Yields
The dollar-yen pair tends to track long-term U.S. Treasury yields, which surged to a fresh 2-1/2-month peak of 4.332% on Wednesday.
Pound’s Movement Against the Dollar
Elsewhere, the British pound fell 0.3% to $1.2554, briefly touching an eight-day low against the dollar, following data showing UK inflation remained at an annual rate of 4.0% in January, unchanged from December. Economists had predicted an increase to 4.2%.
BoE Rate Cut Expectations
Steady inflation could potentially alleviate pressure on the Bank of England (BoE) to maintain current rates for an extended period. Money markets see a 52% chance of a BoE rate cut in June and a 75% chance in August, according to LSE Group data.
Market Performance and Currency Rates
The U.S. Dollar Currency Index, which measures the U.S. currency against six major peers, traded 0.05% higher at 104.91, not far from Tuesday’s three-month high of 104.96. The euro edged 0.05% lower to $1.0703, after briefly dipping to a fresh three-month low of $1.0695.
