Dollar sways as investors focus on Yen close to the intervention zone in early trade

17 Oct 2023 , 10:08 AM

As investors assessed Middle East developments and readied themselves for a spate of lectures by central bank officials this week, including Fed Chair Powell, the U.S. dollar started the day on the back foot on Tuesday.

As long as the yen remained close to the crucial 150-to-1 dollar barrier, traders were on high alert for any indication that the Japanese government could intervene.

The yen’s exchange rate last stood at 149.62 to the dollar after falling as low as 150.17 on October 3—its lowest level in a year—before briefly strengthening.

Masato Kanda, Japan’s senior financial diplomat, stated that despite recent weakening, the yen was still seen as a safe-haven asset like the dollar and the Swiss franc and was gaining from demand as a result of the Middle East war.

On Monday, the shekel of Israel crossed the crucial 4-to-1 threshold for the first time since 2015 due to uncertainty surrounding Israel’s conflict with Hamas, a Palestinian militant organization. In the early Asian hours, it was last down 1% at 4.0199 per dollar.

After falling 0.36% on Monday, the dollar index, which compares the value of the dollar to six rival currencies, slipped 0.038% to 106.20.

During a hectic week of lectures by regional bank heads, investors’ focus will be firmly on Fed Chairman Jerome Powell, who is scheduled to speak on Thursday. Prior to the Fed’s meeting from October 31 to November 1, Fed officials will go into a blackout period on October 21.

Patrick Harker, president of the Federal Reserve Bank of Philadelphia, stated on Monday that the central bank should refrain from raising borrowing costs in order to put more strain on the economy.

According to Harker, ‘we should not at this point be thinking about any increases’ in the Fed’s rate objective.

But less aggressive Fed remarks imply that the Fed may be preparing for a protracted pause. This could reduce dollar upside.

In terms of other currencies, the euro was last at $1.0557, down 0.01% on the day, and sterling was at $1.2214, down 0.02%.

The Australian dollar increased to $0.636 by 0.27%. According to the minutes of the Reserve Bank of Australia’s policy meeting on October 3, Australia’s central bank contemplated hiking rates at that meeting but decided there was not enough fresh information to justify a change.

After statistics on Tuesday revealed that consumer inflation in the country fell to a two-year low in the second quarter, there was less optimism that the central bank will increase the cash rate further in November, and the New Zealand dollar weakened by 0.30% to $0.591.

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