The yen held near 157.55 per dollar on Wednesday, steadying after its most volatile stretch in months triggered by a historic US-Japan intervention. The dollar lingered near a six-week low as fading fears over Iran cut demand for safe havens, while traders trimmed bets on further Federal Reserve tightening.
The yen steadied at 157.55 per dollar on Wednesday, slightly stronger on the day after its most volatile few days in months. The currency had fallen 0.4% on Tuesday, a day after touching 155.2 per dollar. That marked a sharp reversal from the level near 164 per dollar it hit a week earlier, its weakest in 40 years.
That swing followed joint yen-buying purchases by Tokyo and Washington on Friday — the first such US intervention since 1998 — which pushed the dollar to its lowest against the yen in three months. The dollar fell further on Monday before the yen's advance stalled, a pattern that has left some investors sceptical the intervention can hold over the longer run.
Traders question how long the intervention holds
U.S. Treasury Secretary Scott Bessent said Tuesday the US would take whatever steps were needed to help Japan stabilise the yen, language that echoed former European Central Bank President Mario Draghi's 2012 pledge to defend the euro. Bessent also told public broadcaster NHK he trusted Bank of Japan Governor Kazuo Ueda to act in the country's economic interest, a comment that has sharpened market expectations the BOJ could deliver a rate hike at its September 17-18 policy meeting.
CIBC Capital Markets' Jeremy Stretch said the intervention needs one of three conditions to hold longer term: a more aggressive round of BOJ rate increases, markets pricing in fewer Federal Reserve hikes, or a lower oil price. Absent those, Stretch told Reuters the intervention is "nothing more than a containment exercise."
BNY's research note on Wednesday showed investors still hold bullish yen positions, though far smaller than in the first half of the year. Any lasting shift in those holdings, the bank's Geoff Yu said, depends on credible domestic policy changes rather than the US rescue effort alone.
Dollar drifts as oil retreat cools Fed bets
The dollar index, which tracks the currency against six peers, slipped 0.1% to 99.71 after touching a six-week low on Monday. Oil's retreat to around $80 a barrel, alongside signs of easing tension between Washington and Tehran, cut investors' need for safe-haven dollars.
Traders now see just below a 60% chance the Fed raises rates in September, down from near 70% at the start of the week. Kansas City Fed President Jeff Schmid said Tuesday some further tightening is still needed to bring inflation back to the Fed's 2% target.
The euro added 0.1% to $1.155 and the pound gained 0.2% to $1.347. Friday's US employment report is next in line to shape near-term Fed policy expectations.
Sources: Investing.com, Reuters
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