The U.S. dollar hit a new eight-week high above 159 yen and held on to a five-week high against the pound on Friday as the Federal Reserve’s patient approach to rate cuts d interest contrasting with the more dovish positions of other countries.
The dollar index, which measures the currency against six other currencies including the yen, pound sterling, euro and Swiss franc, climbed 0.41% overnight, erasing recorded declines during the week, following a second consecutive interest rate cut by the Swiss National Bank and indications from the Bank of England of a reduction in August.
Meanwhile, the yen remained weak following the Bank of Japan’s decision last week to wait until its July meeting to reduce bond purchases.
As a result, “traders punished the yen with renewed enthusiasm,” pushing it above the closely watched level of 159 per dollar on Friday, said Tony Sycamore, market analyst at IG.
“The BOJ’s timetable is not at all in sync with the markets, and this mismatch will likely force the BOJ to act to support the yen (via intervention in the foreign exchange market) sooner than it would have. had to do it,” Mr. Sycamore said.
The BOJ, at the request of Japan’s Finance Ministry, spent some 9.8 trillion yen ($61.64 billion) to bring the currency down to 160.245 per dollar, its lowest level in 34 years, reached on the 29th. april.
For this reason, the US Treasury on Thursday added Japan to the list of countries it is monitoring for possible designation as a currency manipulator. China is also on this list.
Despite this, Masato Kanda, Japan’s main diplomat responsible for monetary issues, stressed on Friday that Tokyo was ready to take new “resolute” measures against “speculative and excessive volatility”.
The dollar traded 0.04% lower at 158.875 yen, after hitting 159.12 yen.
The US currency was little changed at 0.8909 Swiss francs, after rising 0.78% overnight.
The dollar index fell 0.09% to 105.54, poised to end the week unchanged after two straight weeks of gains.
Sterling gained 0.05% to $1.26635, not moving far from Thursday’s low of $1.2655, a level last seen on May 17. The BoE held its rates steady, but some policymakers said the decision not to cut rates was “finely balanced.”
The euro rose 0.17% to $1.07198, recouping some of Thursday’s 0.39% decline. The European Central Bank began its rate cut cycle earlier this month.
Fed officials, meanwhile, left policy unchanged at their June meeting, and reduced previous forecasts of three quarter-point cuts this year to a single point, even as inflation slowed down and the job market became more flexible.
“The resilience of the U.S. economy has given the Federal Reserve a unique position, allowing the U.S. central bank to use higher interest rates as an inflation-fighting tool more quickly than it could. would have done otherwise,” said James Kniveton, senior foreign exchange trader at Convera.
“With other major central banks adopting more restrictive stances, this could continue to support the dollar in the short to medium term.” ($1 = 158.9900 yen)
