The dollar rose on Wednesday as investors bet on a US economy performing better than its peers. It appreciated for the third day against the Japanese yen, with investors remaining cautious about the risk of intervention from Tokyo.
In Europe, the Swedish krona came under pressure after the central bank cut interest rates and said it expected two more cuts this year, while the pound remained in negative territory ahead of the Bank of England meeting on Thursday.
The move in Sweden served as a reminder that the dollar is likely to remain strong as long as other central banks cut rates before the U.S. Federal Reserve.
The yen remained the focus of forex traders’ concerns as Japanese authorities issued a tougher warning about the impact of the currency’s weakness on the economy.
“Carry trades are still attractive and the market is still more inclined to buy the dollar/yen decline,” said Vasily Serebriakov, foreign exchange strategist at UBS in New York.
“I don’t think the market is ignoring the risk of intervention, but unless there is a significant change in the US economic outlook, we also don’t think there will be a significant change in the pattern of foreign exchange markets “added Mr. Serebriakov.
Analysts said any intervention by Tokyo would only offer a temporary reprieve for the yen, given the wide gap between interest rates in the United States and Japan.
Traders estimate that Japanese authorities spent some $60 billion last week to support the yen after it hit a 34-year low against the dollar, around 160 yen.
The dollar was up 0.59% against the yen at 155.6, up from last week’s low of 151.86.
FED ABOVE EVERYTHING
Investors are focused on the pace and timing of Fed rate cuts. Latest data showing weaker-than-expected job creation in the United States, as well as an easing trend from the US central bank, have reinforced expectations that rates will likely be cut by the end of the year.
The dollar was up 0.11% at 105.54 against a basket of currencies, above its one-month low from last week. The euro fell 0.08% to $1.0745. Sterling weakened 0.1% to $1.2492.
Meanwhile, European central banks have already started cutting interest rates. The Swiss National Bank cut rates in March, ahead of Wednesday’s decision by the Swedish Riksbank.
The European Central Bank has signaled its intention to cut rates in June, provided the data moves in the right direction, and the Bank of England is gradually smoothing the path to its first cut.
“What awaits us is a series of European central banks that will intervene over the next few months, whether in June or August. We have almost a 50% chance that the Fed will cut rates in September, but I think that’s probably one that could be pushed back,” said Kathleen Brooks, research director at XTB.
“For now, and especially today, the focus is on Europe cutting interest rates first, which puts upward pressure on the dollar,” he said. she added.
While traders are counting on a Fed rate cut in September, this decision will also depend on inflation continuing to fall towards the US central bank’s 2% target.
It will be difficult to go further in the Fed’s expectations in the short term and that is why the tendency to buy the dollar will remain in place, said UBS Serebriakov.
Susan Collins, president of the Boston Fed, said Monday that current monetary policy will slow the economy in the way she believes is necessary to bring inflation back to its target level.
In cryptocurrencies, bitcoin fell 0.77% to $62,480, marking a fourth daily loss, its longest streak of daily declines since the start of the year.
