© Reuters. FILE PHOTO: Woman holds U.S. dollar banknotes in this illustration taken May 30, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

By Brigid Riley and Alun John

TOKYO/LONDON (Reuters) – The euro, pound and yen were all pinned at multi-month lows on Tuesday, with the Japanese currency on the brink of weakening past the psychological 150 per dollar level, as surging U.S. Treasury yields kept the dollar firmly on the front foot.

The euro was steady on the day at $1.0476, around its weakest since early December 2022, after a near-1% plunge on Monday when U.S. manufacturing data came in strong and Federal Reserve officials said monetary policy would need to stay restrictive for “some time”.

The combination of that and an agreement to avert a partial U.S. government shutdown sent benchmark Treasury yields to as high as 4.706% on Tuesday, a 16-year peak, in turn driving the dollar higher.

“There are two very powerful things that are supporting the U.S. dollar at the moment, the real rate differential is favourable to the U.S. and the U.S. economy is outperforming,” said Samy Chaar, chief economist at Lombard Odier.

Real interest rates, unlike nominal ones, factor in inflation which is falling faster in the United States than in Europe.

Chaar said he also thought there were technical factors driving the sell-off in U.S. Treasuries, possibly capitulation by major investors, as the economic situation, in his view, did not justify yields continuing to rise.

The pound fell to its lowest since March and was last down 0.26% at 1.20565, and traders were focused on the Japanese yen which was flat on the day at 149.89 per dollar, but still around its weakest in nearly a year and just shy of the 150 per dollar level that some see as potentially pushing Japanese authorities to intervene to prop up the currency.

Japanese Finance Minister Shunichi Suzuki said on Tuesday authorities were watching the currency market closely and stood ready to respond, but also said any decision on currency market intervention would be based on volatility, not specific yen levels.

Although Japanese officials have stated “that the government is not watching any particular level … interventions had previously occurred around 150, signifying official discomfort when the (yen) weakens beyond this point”, said Wei Liang Chang, foreign exchange and credit strategist at DBS.

The , which tracks the unit against six peers, was up 0.13% at 107.16, at its highest since November.

The main data points in the United States this week relate to the labour market. “(Tuesday’s) U.S. JOLTS job openings and non-farm payrolls on Friday can be a catalyst to push up U.S. yields and the USD if they surprise to the upside,” said Carol Kong, economist and currency strategist at Commonwealth Bank of Australia (OTC:).

The Australian dollar slipped to an 11-month low of $0.6302, down as much as 0.95% following the Reserve Bank of Australia’s (RBA) decision to hold rates, while Russia’s rouble weakened past the symbolic threshold of 100 to the dollar before recovering slightly in early trade.

The dollar was up 0.5% against the Swiss franc at 0.9215 at a six month high after Swiss inflation dipped and came in slightly below expectations

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On Tuesday, the South African rand depreciated against the US dollar, a development attributed to unfavorable local economic data and rising US Treasury yields. The ABSA Manufacturing PMI’s decline signaled a growing divergence between the South African and US economies. This disparity was further highlighted by the hawkish remarks made by Fed official Mester.

The influence of China’s National Day Golden Week on commodity prices also contributed to the softer rand, favoring the safe-haven dollar. Market participants are closely observing the forthcoming speech by Raphael Bostic, Atlanta Fed Chief, which could potentially impact currency trends.

The pair is grappling with the 19.3000 resistance handle, revealing a rising wedge pattern that suggests a brief upside rally may be imminent. The susceptibility of Emerging Market currencies, particularly in relation to the USD/ZAR support levels, is being underscored in light of these developments.

These observations highlight the current state of global currency markets and underline the potential risks and opportunities for investors. As always, market participants are urged to closely monitor these dynamics as they evolve in response to both domestic and international economic indicators.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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The currency pair is currently teetering on the significant 150 level, influenced by minor fluctuations in U.S. Treasury yields, as of Tuesday. Market speculation is focused on the potential intervention by the Japanese Ministry of Finance (MOF), which could trigger follow-on trades and stops if this level is exceeded.

Goldman Sachs, however, has a different outlook. The multinational investment bank and financial services company foresees the USD/JPY climbing to 155, without any necessity for intervention. This prediction is backed by strong USD/JPY fundamentals.

This current situation mirrors the events of last October when the USD/JPY surged to 151.94 before experiencing a swift reversal. The market will be closely watching these developments and any potential interventions or lack thereof from the Japanese MOF.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.