The yen rallied to its strongest level since February on Tuesday before paring the move as oil-driven inflation worries lifted the dollar and Treasury yields. Traders now weigh a hawkish Bank of Japan against a Federal Reserve watching this week's U.S. inflation data ahead of its September meeting.
The yen strengthened to as much as 152.89 per dollar on Tuesday, surpassing the levels reached during Japan's July intervention and marking its strongest point since February. The currency then pulled back to trade around 154 through London and early New York hours, broadly flat on the day.
Renewed pressure on the dollar came from a jump in oil prices that revived inflation worries. The dollar index edged nearly 0.2% higher. The 10-year U.S. Treasury yield resumed its climb toward multi-year highs on expectations that a prolonged Middle East conflict will keep energy prices and inflation elevated.
Yen's quarterly surge meets a hawkish BOJ
The yen has surged more than 5% so far this quarter, with traders and analysts pointing to bets on a faster pace of Bank of Japan tightening, the potential for Japanese investors to repatriate funds, the unwinding of carry trades, and U.S. political pressure. Traders largely expect the central bank to raise rates by 25 basis points to 1.25% at its September 17-18 meeting.
Japanese Finance Minister Satsuki Katayama said Tokyo and Washington remain aligned on currency markets and will keep close communication to ensure orderly foreign-exchange moves.
Oil spike and Fed rate path add pressure
Investors were also watching Gulf tensions after Yemen's Houthis attacked energy facilities and cities in Saudi Arabia, wounding more than 70 people, underscoring the risk of the Iran conflict widening. Brent crude futures held above $98 a barrel, near a six-week high.
Market focus now shifts to this week's U.S. inflation readings, the last major data before the Fed's September 15-16 meeting. Traders are pricing a roughly 60% chance of a Fed rate hike this month, following Friday's stronger-than-expected nonfarm payrolls report. Fed Governor Christopher Waller said last week he was leaning toward keeping rates steady if price pressures continued to moderate, but would support a hike if inflation failed to cool.
Source: Economy News
Trading involves risk.
Risk Disclaimer
