The dollar sank to more than a two-month low against the yen on Thursday in a move analysts believe reflects official intervention by Tokyo to prop up a currency pinned at four-decade lows. Cooling U.S. inflation and slower growth pressured the dollar broadly, lifting the euro and pound as well.
The dollar fell 2.6% against the yen to 159.225 yen, its weakest level since May 14, in a move analysts said looked like official intervention by Japanese authorities. Tokyo has warned for months that it would act as the yen's decline worsened the cost of living by pushing up energy import prices.
Traders point to intervention
No official confirmation exists: the Japanese finance ministry's foreign exchange division could not immediately be reached for comment, and market participants stressed there was no official confirmation of intervention. Still, Tom Nakamura, head of fixed income and currencies at AGF Investments, said: "Yes, I think it is intervention, although we haven't seen anything definitive." He added that the suddenness and degree of the move in dollar/yen suggested intervention.
The yen's jump comes a day ahead of the Bank of Japan's interest rate decision. Economists expect the central bank to hold rates at 1%, though recent reports suggest policymakers are weighing a faster pace of hikes as the economy reels from inflation pressures while the Iran war rages on.
Cooling inflation and slower growth weigh on the dollar
The dollar was also weaker across the board after data showed U.S. inflation cooled in June, a day after the Federal Reserve left interest rates unchanged. The Personal Consumption Expenditures price index rose 3.7% in the 12 months through June, easing from an unrevised 4.1% in May, the Commerce Department's Bureau of Economic Analysis said.
Gross domestic product grew at a 1.5% annualized rate in the second quarter, well below the 2.1% pace economists polled by Reuters had forecast, amid a widening trade deficit. Traders also raised their bets for the Fed to leave rates unchanged again in September, pricing a 34.8% probability of a hold, up from 24% before the latest meeting, according to the CME Group's FedWatch tool.
Euro and pound extend gains
The euro rose 0.5% to $1.15318, extending its advance from the prior session when the dollar weakened after a divided Fed left rates unchanged. Fed Chair Kevin Warsh pledged an unwavering commitment to bringing down inflation, a message that left markets confused about what he was prepared to do in coming months.
Sterling gained 0.8% to $1.34755 after the Bank of England held interest rates steady on Thursday as it waits to see how the Iran war affects inflation pressures. The renewed hostilities prompted a third policymaker to back a rate hike.
Source: Economy News (Investing.com)
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