The dollar headed for a second straight quarterly gain and hit a near four-decade high on the battered yen in Asian trading on Friday, ahead of a crucial reading on U.S. inflation.
Neither the drop in US interest rates nor the rise in consumer prices in Tokyo could stop the fall of the Japanese currency, which reached its lowest level since 1986, at 161.155 per dollar.
Over the quarter, it lost 6% against the dollar and over the year, it lost 12%, representing the largest decline of any G10 currency. At 172.37 per euro, it traded at an all-time low on the common currency, as yen bears test the resolve of authorities.
Low Japanese interest rates have encouraged the selling of yen into higher-yielding currencies, the so-called “carry trade,” even as Japanese yields have started to rise and Japanese officials have warned of a new round of foreign exchange interventions.
“The appetite for carry trading in a low volatility environment remains,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney.
“Having broken through 160 (per dollar) without intervention, I don’t think the market is as fearful as it might have been in the run-up to 160.
Core inflation in the Japanese capital accelerated in June, data showed Friday, fueling expectations of some small interest rate hikes in the second half of 2024.
Elsewhere, the dollar was firm in the morning in Asia as the first US presidential debate between Republican candidate Donald Trump and Democratic President Joe Biden began in Atlanta.
The euro was down 0.1% at $1.0691 and sterling edged lower at $1.2626. The Australian dollar was down 0.4% at $0.6623, although it is heading for a gain of around 1.6% over the quarter as stagnant inflation dampened expectations of Australian rate cuts in the near future.
The New Zealand dollar fell 0.3% to $0.6065 on Friday, but was up 1.5% for the quarter. The U.S. dollar index gained 0.2% to 106.07 on Friday, for a quarterly gain of 1.5%.
Dollar strength and the U.S. balance sheet were possible topics for the debate between Mr. Biden and Mr. Trump, although NAB’s Mr. Attrill said many market participants would be watching to see if Mr. Biden was keen on his feet and up to the task.
Later in the day, traders are looking ahead to the U.S. personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, and expect annual growth to have slowed to 2.6% in May, its weakest in more than three years.
