The yen slid further towards a 38-year low against the US Dollar on Thursday, with traders closely monitoring signs of potential intervention from Japanese authorities to support the currency. The yen weakened by 0.2% to 160.47 per dollar, having reached a low of 160.88 on Wednesday – its weakest level since 1986.
In the broader marketplace, the value of the dollar took a minor step back as US Treasury yields experienced a slight decrease, but it stayed near an eight-week peak when measured against a collection of currencies.
For the currency to start giving up some of its year-to-date gains, we would have to see a continuation of the global disinflation trend and for politics to move out of the spotlight
Boris Kovacevic
The Japanese currency has dropped 2% this month and 12% for the year against a resilient dollar, largely due to wide interest rate differentials between the US and Japan. This has bolstered the yen's appeal for carry trades, where investors borrow at Japan's lower interest rates to invest in higher-yielding assets. Carry trades have exacerbated the currency's downward trend.
Traders are closely monitoring economic data from Tokyo. They are hesitant to engage in the market presently, despite potential Japanese regulatory actions, due to their belief in the data's profound impact on investment decisions.
Analysts argue that while the prospect of intervention has grown, Japanese authorities might face significant costs or negative economic consequences if they attempt to prop up the yen significantly.
There seems little chance that the Bank of Japan and its allies can shore up the yen without incurring horrendous costs, or jacking up rates to such an extent that they destroy the economy
David Morrison
David Morrison, senior market analyst at Trade Nation, noted that the Bank of Japan and its allies might struggle to support the currency without incurring substantial expenses or causing severe economic damage.
Currency fluctuations
The sterling edged higher away from a one-month low against the dollar, with a 0.22% rise to $1.2649. Meanwhile, the euro also gained slightly, up 0.18% to $1.0699, although it remains on track to lose around 1.4% for the month due to political instability in Europe and the upcoming French election.
The dollar index fell by 0.15%, settling at 105.89 - close to its almost two-month peak of 106.13 hit midweek. The dollar's current robustness can be attributed not only to the political instability in Europe but also to the prevailing sentiment that US interest rates will remain elevated for a prolonged timeframe, as suggested by Boris Kovacevic, a global macro strategist at Convera.
"Political turmoil in Europe and the higher-for-longer narrative in the US have added to the dollar's appeal," he stated.
The Swedish currency, the crown, felt the brunt of the market's reaction after the Riksbank announced that it would not adjust its benchmark interest rate, which currently stands at 3.75%. Market participants have been speculating about possible interest rate reductions during the second part of the year.
The Swedish crown succumbed to the pressure exerted by the strengthening US Dollar, resulting in a 0.2% decline for the currency, as the dollar traded at a higher value of 10.60.
In the meantime, the Australian Dollar saw a notable 0.3% increase, reaching $0.6668. Investors remained focused on analyzing the implications of Wednesday's unexpected inflation data and pondering the possibility of an additional interest rate hike from the Reserve Bank of Australia before the year's end.
The currency market has experienced a relatively quiet week with minimal price fluctuations. Investors are maintaining caution and closely monitoring upcoming economic data, particularly the US core PCE data, for insights into potential shifts in monetary policy and interest rates.
The deadline for investors to trade currencies for the quarter passed on Wednesday, while trading of US stocks transitioned to a shorter settlement cycle – known as T+1 – last month.