Written by Kevin Buckland
TOKYO (Reuters) – The dollar healed its wounds on Wednesday after sharp falls against the euro and pound, but the yen remained mired near 34-year lows even as Japanese authorities stepped up warnings of intervention. I was hooked.
The dollar’s broad overnight decline was driven by surprisingly strong economic activity data in Europe and slower business growth in the United States.
The Australian dollar took full advantage of a weaker dollar and rebounded in early Asian trading on Tuesday, helped by better-than-expected consumer price data.
The stock rose 0.45% to $0.65185 after rising to $0.6525 for the first time since April 12 in early reaction to the data.
The currency had already rebounded more than 1% in the past two days after falling to a five-month low on Friday.
The inflation report raised hopes that the Reserve Bank of Australia would not rush to ease policy.
“This overshoot is likely to eliminate the possibility of an RBA rate cut this year,” said James Kniveton, senior corporate exchange dealer at Convera.
“The Australian dollar has benefited from the RBA’s reassessment of its monetary policy path, but geopolitical risks remain.”
The currency, which measures the currency against six major currencies including the euro, pound and yen, fell 0.4% overnight to hit 105.23, its lowest since April 12, before falling 0.07% in early Asian trading. The price fell to 105.60.
The euro rose 0.11%, following Tuesday’s 0.45% rise, after data showed business activity in the euro zone expanded at the fastest pace in nearly a year, mainly due to a recovery in services. It became $1.071125.
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Sterling also benefited from overnight data showing British business activity rose at its fastest pace in almost a year, although Hugh Pill, chief economist at the Bank of England, said a rate cut was still a long way off. Indicated. The pound was last up 0.79% and rose 0.11% to $1.2461.
By contrast, U.S. business activity cooled to a four-month low in April due to weak demand, while inflation fell slightly, hinting at possible Federal Reserve easing. ing.
A major test will be the release on Friday of the PCE deflator, the Fed’s recommended consumer inflation measure. The market is currently pricing in a 73% chance of a first rate cut by September, according to CME’s FedWatch tool.
“The story remains that the US economy is quite resilient, and as long as the US economy remains in this situation, risks to the US dollar remain biased to the upside, even with the possibility of further Fed rate hikes. ” said Kyle Rodda, senior financial market analyst at Capital.com.
Last week, the index hit a 5-1/2-month high of 106.51, as persistent inflation forced Fed officials to signal that they are in no hurry to ease.
Despite the dollar’s broad swings on Tuesday, the dollar at one point rose enough to hit a 34-year high of 154.88 yen against the yen.
The dollar has been moving in a very narrow range between its high and low of 154.50 this week, with traders wary that anything above 155 could increase the risk of dollar-selling intervention by Japanese authorities. The dollar last moved slightly at 154.795 yen.
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Japan’s Finance Minister Shunichi Suzuki on Tuesday issued his strongest warning yet about possible intervention, saying his meetings with his U.S. and South Korean counterparts last week laid the foundation for Japan to act against excessive yen movements. said.
The Bank of Japan raised interest rates for the first time since 2007 just last month and is widely expected to leave policy settings and bond purchases unchanged at the end of its two-day meeting on Friday.
Japan’s central bank is also likely to signal that it is prepared to tighten policy again this year, but its highly cautious and data-driven approach has limited any appreciation in the yen.
“Aside from financial costs, failure of currency intervention could have a significant impact on the credibility of Japanese authorities,” Rabobank strategist Jane Foley said in a client note.
“Historically, currency interventions are most successful when the fundamentals happen to shift in favor of the currency,” he said. “It may not fall until the summer, and that assumes the Fed is able to cut rates in September.”
