Yen Nears Intervention Level, Euro Hits New Low as Dollar Continues to Strengthen

3 Oct 2023 , 09:12 AM

Strong U.S. economic data reinforced the expectation that the Federal Reserve will maintain higher interest rates for an extended period, leading to the dollar holding its recent highs and pushing the yen closer to a potential intervention level.

Furthermore, the euro dipped below January’s all-time low of 1.0482 against the dollar, as manufacturing surveys from both Europe and the U.S., released on Monday, highlighted the contrasting economic conditions in the two regions.

The dollar index rose by nearly 0.5% to 107.06, briefly reaching 107.12, its highest level since November 2022.

A survey published on Monday indicated that the U.S. manufacturing sector moved closer to recovery in September, with increased production and employment. The survey also revealed significant declines in factory input prices.

The favorable economic data supported the Fed’s stance that interest rates should remain elevated for a longer period, although the last-minute agreement to avert a government shutdown reduced demand for U.S. debt. Additionally, rising U.S. Treasury yields benefited the dollar.

Strong U.S. economic indicators in recent weeks have boosted confidence that the Fed will maintain its current rate policy for an extended period. However, several policymakers have cautioned that further tightening may be necessary if inflation fails to decelerate as anticipated.

The yen has faced increased pressure due to the recent strengthening of the dollar, approaching the psychologically significant 150-level. This level is viewed by markets as a red line for the Japanese government and could lead to intervention, as it did last year.

On Monday, Japan’s top economic officials issued another warning, expressing a ‘strong sense of urgency’ as the yen weakened.

In terms of the dollar, the yen was last trading at 149.80, slightly above the overnight low of 149.88.

The euro zone PMI survey released on Monday indicated that demand continued to contract at a pace rarely seen since data collection began in 1997. Consequently, the euro fell to as low as $1.0462 during Asian trading, its lowest level since December of the previous year.

The last time the pound’s value was at $1.20790 was on March 16.

The Australian dollar remained relatively unchanged as the Reserve Bank of Australia was expected to announce its interest rate decision later in the day. According to a Reuters survey of analysts, Australia’s central bank is likely to maintain its benchmark interest rate at 4.10%. However, another rate hike is expected next quarter, with a peak cash rate of 4.35%, as long as inflation remains above the target.

For feedback and suggestions, write to us at [e-mail]