Dollar remains strong in early trade; falling yen fuels possibility of intervention

25 Sep 2023 , 10:58 AM

After the Bank of Japan and Governor Kazuo Ueda dashed hopes of any impending shift away from its stern, ultra-loose monetary policy, the yen on Monday came dangerously near to the widely watched 150 to the dollar level and had traders on intervention alert.

The dollar gained ground in the global currency market as the still-hawkish Federal Reserve shocked the market by indicating that U.S. rates would need to remain higher for longer than anticipated.

The yen dropped to a more than 10-month low of 148.49 per dollar and hovered close to 150, which some market observers believed to be a tipping point that would trigger a similar forex intervention from Japanese authorities to that of last year.

The BOJ maintained ultra-low interest rates and adhered to its dovish position, and Governor Ueda similarly emphasised the need to spend more time reviewing data before increasing interest rates, which caused the Japanese yen to decline by more than 0.5% on Friday.

Yellen stated last week that it ‘depends on the details’ of the situation as to whether Washington will be sympathetic to Japan’s latest yen-buying operation.

In other news, the euro increased 0.04% to $1.0649, up from Friday’s six-month low of $1.0615 against a stronger dollar.

The euro was expected to experience its biggest monthly decline since May, losing 1.8% or so for the entire month.

After falling more than 1% last week on the basis of the Bank of England’s decision to suspend its rate-hike cycle, which occurred a day after data revealed that Britain’s high inflation rate unexpectedly eased, sterling stabilised around $1.2244.

The pound was on track to experience its worst monthly performance in a year in September, falling more than 3%.

Even though the Fed decided to leave rates on hold at its policy meeting last week, officials still foresaw future rate hikes, and markets currently give a 25-basis-point increase in November’s meeting a roughly 21% likelihood.

The dollar index, which reached a high of nearly six months on Friday, strengthened to 105.57 in the early Asian trading session.

After briefly reaching a three-week high of $0.6001 earlier in the session, the Australian dollar increased 0.06% to $0.6445, while the New Zealand dollar decreased 0.05% to $0.5958.

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