Threat of intervention slows dollar's rise to new high on yen -March 25, 2024 at 01:56

The dollar remained ahead Monday and held the yen near a multi-decade low, although the threat of intervention by Japanese authorities kept the greenback from moving further north.

The yen settled at 151.25 per dollar, after hitting a four-month low of 151.86 last week, which left it near a 32-year low of 152 per dollar. dollar reached in 2022.

Japan's top currency diplomat said Monday that the yen's current weakness does not reflect fundamentals, adding to rhetoric from government officials who have increased warnings in recent days about the currency's decline.

These moves follow the historic rise in interest rates by the Bank of Japan (BOJ) at its March meeting, the decision having been well announced. Traders also assumed that Japanese rates would remain low for some time to come, thus maintaining the considerable rate differentials with the United States.

“The verbal intervention from Japanese officials makes 152 very strong near-term resistance for the dollar/yen,” said Carol Kong, currency strategist at the Commonwealth Bank of Australia.

“Markets are fully aware of the possibility of real intervention by the authorities in the foreign exchange market, and I believe that this prevents the dollar/yen from rising substantially.

“I think there is still a high risk that they will intervene to support the yen if the dollar/yen were to rise significantly, perhaps to 155. It's still seen as a line in the sand “.

A change in the outlook for global rates following a series of central bank meetings has breathed new life into the dollar, on expectations that the Federal Reserve is likely to keep rates higher for longer then as its counterparts elsewhere begin to ease their rates.

Bets on a June rate cut by the European Central Bank and Bank of England have risen significantly after the Swiss National Bank became the first major central bank to do so last week.

This kept the pressure on their respective currencies, with the euro falling 0.03% to $1.08045, approaching a three-week low.

Sterling fell 0.02% to $1.25985, after losing more than 1% last week following downbeat signals from the BoE. The Financial Times also reported Friday that Governor Andrew Bailey said rate cuts “were in play” this year.

“The BoE and ECB have galvanized expectations for their decision in June, with the BoE meeting in May even showing signs that it could be a live meeting,” said Chris Weston, head of the research at Pepperstone.

In comparison, while the market also expects the Fed's easing cycle to begin in June, a series of resilient U.S. economic data has raised doubts about the central bank's ability to proceed with three rate cuts this year.

The dollar index was up 0.03% at 104.46, after posting a weekly gain of almost 1% last week.

Elsewhere, the Australian dollar fell 0.05% to $0.65115, while the New Zealand dollar fell 0.13% to $0.5987.

Both have also been partially influenced by the decline of the yuan, given that they are often used as liquid substitutes for the Chinese currency.

The yuan's weakening beyond a key threshold on Friday prompted state banks to step in to defend the currency, but with little success as the onshore yuan ended the domestic session at its weakest level in four month.

The yuan has come under pressure from growing market expectations for further monetary easing to support the world's second-largest economy.

In the offshore market, the yuan was marginally lower at 7.2761 per dollar.

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