Yen weakens as US Treasury yields rise, boosting dollar

12 Apr 2024 , 10:38 AM

Friday saw the yen struggle to break out from a 34-year low and headed for a weekly fall, while the dollar and U.S. Treasury rates were trading close to a five-month high as speculators significantly reduced their expectations on a wave of rate cuts this year.

The euro was headed for its biggest weekly decline in around four months, partly due to predictions that the European Central Bank (ECB) may start reducing rates in June, probably ahead of the Federal Reserve, and the dollar’s comeback.

The U.S. Treasury rates, which the dollar/yen pair usually tracks closely, surged during the previous session, pushing the yen to a 34-year low of 153.32 per dollar. The yen was lastly slightly higher at 153.17 per dollar.

Due to concerns about potential Japanese government intervention, the 152 yen level initially appeared to be a formidable barrier for the dollar. However, a high inflation reading from the US on Wednesday sparked a broad rally in the currency, ultimately pushing it beyond the crucial barrier.

In addition to the barrage of verbal interventions from authorities in recent weeks in an attempt to halt the yen’s drop, Japanese Finance Minister Shunichi Suzuki said on Friday that authorities were studying factors that are driving the currency’s movements as well as recent yen levels.

In other news, the euro last bought $1.0726, moving away from a two-month low set in the previous session, while sterling fell 0.01% to $1.2553.

The European Central Bank (ECB) kept interest rates at a record high on Thursday as predicted, but it also hinted that it might begin cutting them as early as June. As a result, the single currency was headed for a weekly loss of more than 1%.

The Fed, which is currently only largely expected to start lowering rates by September, would probably follow the ECB’s June drop. This is because expectations for a first Fed cut before the end of summer were dashed by a stronger-than-expected reading on U.S. consumer prices.

From nearly 60 basis points at the beginning of the week, futures now indicate that the Fed will only ease policy by about 40 basis points this year.

Despite the fact that data released on Thursday indicated that producer prices in the United States rose somewhat in March, allaying concerns about a spike in inflation, U.S. Treasury yields continued to rise to all-time highs despite a radical shift in expectations for U.S. interest rates.

The benchmark 10-year yield was trading near its five-month high of 4.5930% from the previous day, with a current yield of 4.5784%.

The two-year yield, which usually indicates expectations for short-term interest rates, moved marginally lower to 4.9482% on Thursday after rising above 5% for the first time since November.

The Australian and New Zealand dollars also experienced a 0.02% decline as a result of the dollar’s restored strength. The Kiwi was expected to lose almost 0.3% for the week, and the Australian was expected to drop by around 0.6%.

The dollar gained 0.01% against a group of currencies to 105.28, staying close to the previous session’s five-month high of 105.53.

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