The U.S. dollar remained stable against major currencies on Monday, gaining strength over the Japanese yen, which is currently monitored for possible intervention.
This increased scrutiny is a response to the Japanese finance minister’s warning about excessive fluctuations in the market.
The greenback had earlier weakened in June due to a decline in U.S. manufacturing, reaching levels similar to the early stages of the COVID-19 pandemic.
According to the Institute for Supply Management (ISM), the manufacturing PMI declined from 46.9 in May to 46.0 in June, the lowest reading since May 2020. It also marks the eighth consecutive month where the PMI has remained below the threshold of 50.
Marc Chandler, the chief market strategist at Bannockburn Global Forex in New York, noted that the prices paid component of the ISM report was weaker than expected. “The ISM saw the dollar pare its earlier gains,” Chandler said.
The ISM survey’s results indicated an effectively controlled recession. However, data from nonfarm payrolls, initial unemployment claims and housing starts indicate further growth in the U.S. economy. The data raise concerns for those anticipating a resurgence of inflation in the upcoming months.
Ed Moya, a senior market analyst at OANDA in New York, mentioned that the upcoming consumer price index (CPI) release on July 12 would mark the bottom of the inflation process.
In reaction to the news, the yield on two-year Treasuries initially dropped before rising alongside the dollar. The two-year yield reached its highest point in four months, hitting 4.963 percent.
The ISM survey revealed a decrease in the prices paid by manufacturers in June, with the measure falling to 41.8 from the previous month’s 44.2. This decline can be attributed to easing supply chain bottlenecks and reduced demand from higher borrowing costs.
The Commonwealth Bank of Australia is anticipating a recession in the U.S. economy starting in the third quarter of 2023, said its senior currency strategist Kristina Clifton ahead of a quiet Independence Day.
The dollar index, which gauges the strength of the U.S. dollar against a basket of six other currencies, increased by 0.039 percent.
Yen weakens
The Japanese yen dropped close to its lowest level in eight months against the dollar, signaling the possibility of intervention. This development follows Finance Minister Shunichi Suzuki’s cautionary statement on Friday, urging investors not to sell the yen excessively.
Japan engaged in yen purchases in September, marking its first intervention in the currency market since 1998. This move was taken in response to the Bank of Japan’s decision to maintain an ultra-dovish policy. It caused the yen to weaken to 145 against the dollar.
Japan took further intervention measures in October when the yen dropped to its lowest level in 32 years at 151.94. As a result, the Japanese yen experienced a 0.25 percent depreciation against the greenback, reaching a rate of 144.68 yen per dollar.
Charu Chanana, a market strategist at Saxo Markets, suggested that the current situation signals a potential coordinated intervention soon.
“A coordinated intervention usually has a longer-lasting impact on the yen than a unilateral intervention would have,” Chanana said.