Investing.com – The U.S. dollar slipped lower Thursday, retreating from last week’s five-month highs ahead of the release of key U.S. growth data, while the Japanese yen falls to 34-year lows.

At 04:10 ET (09:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 105.445, having climbed well over 106 last week.

Dollar to remain strong until end of “economic exceptionalism”

The dollar has edged lower ahead of the release of first-quarter U.S. data later in the session, which will show just how resilient the U.S. economy was in the beginning of 2024.

The Commerce Department’s reading of gross domestic product is seen slowing to 2.5% in the first three months of the year from 3.4% in the fourth quarter, a drop in growth but an indication that the U.S. remains more robust than other advanced economies despite a period of sticky inflation and elevated interest rates.

More closely watched will be data – the Fed’s preferred inflation gauge – which is due on Friday.

Despite the recent slippage, the dollar will remain the king of the currency playground until U.S. “economic exceptionalism” cools, according to Macquarie, in Wednesday note.

“Until the rest of the world begins to surpass the U.S., and until the Fed sets forth a clearer horizon for the start of policy easing, we continue to believe that it will be difficult for FX to rally against the USD,” Macquarie said.

Euro hands back some of prior session’s gains

In Europe, rose 0.3% to 1.0726, gaining after the forward-looking showed a small improvement in May, coming in at -24.2, an improvement from the upwardly-revised -27.3 seen the prior month.

This follows on from Wednesday’s rise in Germany’s Ifo Institute’s survey on business conditions and expectations for April, suggesting that the eurozone’s largest economy is slowly recovering.

rose 0.5% to 1.2521, with confidence growing after British businesses recorded their fastest growth in activity in nearly a year earlier this week.

Senior BoE officials – Governor Andrew Bailey and Deputy Governor Dave Ramsden – have recently said British inflation was falling in line with the central bank’s predictions and the risk of it getting stuck too high had receded, setting the stage for a rate cut.

That said, was above the BoE’s 2.0% target in March, coming in at 3.2%.

USD/JPY soars above 155 resistance

In Asia, rose 0.2% to 155.67, with the pair climbing to its highest level since 1990, above the widely-watched 155 level.

The yen’s slide against the dollar has revived expectations of currency intervention, with Japanese Finance Minister Shunichi Suzuki, along with other policymakers, stating that they are watching currency moves closely and will respond as needed.

The Bank of Japan concludes its latest policy-setting on Friday, and is expected to keep rates unchanged after a historic hike in March.

edged higher to 7.2473, remaining close to five-month highs, amid a series of strong fixes by the People’s Bank of China.

rose 0.5% to 0.6529, buoyed by receding bets of rate cuts from the this year after the country’s consumer price inflation slowed less than expected in the first quarter.

By Leika Kihara

TOKYO (Reuters) -Japanese authorities are facing renewed pressure to combat a sustained depreciation in the yen, as traders drive down the currency on expectations that any further interest rate hikes by the central bank will be slow in forthcoming.

Below are details on how yen-buying intervention works:

LAST CONFIRMED YEN-BUYING INTERVENTION?

Japan bought yen in September 2022, its first foray in the market to boost its currency since 1998, after a Bank of Japan (BOJ) decision to maintain its ultra-loose monetary policy drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.

WHY STEP IN?

Yen-buying intervention is rare. Far more often the Ministry of Finance has sold yen to prevent its rise from hurting the export-reliant economy by making Japanese goods less competitive overseas.

But yen weakness is now seen as problematic, with Japanese firms having shifted production overseas and the economy heavily reliant on imports for goods ranging from fuel and raw materials to machinery parts.

WHAT HAPPENS FIRST?

When Japanese authorities escalate their verbal warnings to say they “stand ready to act decisively” against speculative moves, that is a sign intervention may be imminent.

Rate checking by the BOJ – when central bank officials call dealers and ask for buying or selling rates for the yen – is seen by traders as a possible precursor to intervention.

WHAT HAPPENED SO FAR?

Finance Minister Shunichi Suzuki told reporters on March 27 that authorities could take “decisive steps” against yen weakness – language he hasn’t used since the 2022 intervention.

Hours later, Japanese authorities held an emergency meeting to discuss the weak yen. The meeting is usually held as a symbolic gesture to markets that authorities are concerned about rapid currency moves.

After the warnings failed to arrest the yen’s fall, South Korea and Japan won acknowledgement from the United States over their “serious concerns” about their currencies’ declines in a trilateral meeting held in Washington last week.

The market impact of the agreement did not last long. The dollar continued its ascent and notched a 34-year high of 155.74 yen on Thursday, driving past the 155 level seen as authorities’ line in the sand for intervention.

NEXT LINE IN THE SAND?

Authorities say they look at the speed of yen falls, rather than levels, and whether the moves are driven by speculators, to determine whether to step into the currency market.

While the dollar has moved above the psychologically important 155 level, the recent rise has been gradual and driven mostly by U.S.-Japanese interest rate differentials. That may make it hard for Japan to argue that recent yen falls are out of line with fundamentals and warrant intervention.

Some market players bet Japanese authorities’ next line in the sand could be 160. Ruling party executive Takao Ochi told Reuters the yen’s slide towards 160 or 170 to the dollar could prod policymakers to act.

WHAT’S THE TRIGGER?

The decision is highly political. When public anger over the weak yen and a subsequent rise in the cost of living is high, that puts pressure on the administration to respond. This was the case when Tokyo intervened in 2022.

Prime Minister Fumio Kishida may feel the need to prevent further yen falls from pushing up the cost of living with his approval ratings faltering ahead of a ruling party leadership race in September.

But the decision would not be easy. Intervention is costly and could easily fail, given that even a large burst of yen buying would pale next to the $7.5 trillion that change hands daily in the foreign exchange market.

HOW WOULD IT WORK?

When Japan intervenes to stem yen rises, the Ministry of Finance issues short-term bills, raising yen it then sells to weaken the Japanese currency.

To support the yen, however, the authorities must tap Japan’s foreign reserves for dollars to sell for yen.

In either case, the finance minister issues the order to intervene and the BOJ executes the order as the ministry’s agent.

CHALLENGES?

Japanese authorities consider it important to seek the support of Group of Seven partners, notably the United States if the intervention involves the dollar.

Washington gave tacit approval when Japan intervened in 2022, reflecting recent close bilateral relations.

Finance Minister Suzuki said last week’s meeting with his U.S. and South Korean counterparts laid the groundwork to act against excessive yen moves, a sign Tokyo saw the meeting as informal consent by Washington to intervene as needed.

A looming U.S. presidential election may complicate Japan’s decision on whether and when to intervene.

In a social media post on Tuesday, Republican presidential candidate Donald Trump decried the yen’s historic slide against the dollar, calling it a “total disaster” for the United States.

There is no guarantee intervention will effectively shift the weak-yen tide, which is driven largely by expectations of prolonged low interest rates in Japan. BOJ Governor Kazuo Ueda has dropped hints of another rate hike but stressed that the bank will tread cautiously given Japan’s fragile economy.

Investing.com– Most Asian currencies kept to a tight range on Thursday, while the dollar steadied amid uncertainty over U.S. interest rates ahead of key economic signals in the coming days.

The Japanese yen saw extended losses, with the pair hitting new 34-year highs before a Bank of Japan meeting on Friday. The currency pair also blew past a level that traders had widely expected to elicit intervention from the Japanese government. 

USDJPY blows past intervention level; BOJ awaited 

The USDJPY pair surged past the 155 level in overnight trade, and steadied around 155.44 in Asian trade.

Traders had widely expected 155 to act as a threshold for currency market intervention by the Japanese government. But officials only continued with their verbal warnings, while sustained gains in USDJPY indicated little action had been taken.

Weakness in the yen put an upcoming squarely in focus. 

The central bank is widely expected to keep interest rates unchanged on Friday, following a historic rate hike in March. 

But recent weakness in the yen, coupled with expectations of higher wages and stickier inflation put traders on guard over any hawkish signals from the BOJ.

The BOJ could potentially hike its inflation outlook and reiterate plans to raise interest rates further this year- a scenario that could potentially boost the yen.

But just how much the yen will recover remained uncertain, given that the biggest point of pressure on the yen- ie- fears of higher-for-longer U.S. interest rates- still remained in play.

Dollar steadies with more rate cues on tap 

The and steadied in Asian trade after recovering mildly in overnight trade. 

The greenback remained close to over five-month highs hit last week, as traders steadily priced out expectations of early interest rate cuts by the Federal Reserve.

Economic data due this week was set to provide more cues on the path of interest rates. First quarter U.S. data is due later on Thursday, and will show just how resilient the U.S. economy was in the beginning of 2024.

More closely watched will be data- the Fed’s preferred inflation gauge- which is due on Friday. 

Anticipation of the data kept most Asian currencies on the backfoot. The South Korean won’s pair moved little even as showed the economy grew much more than expected in the first quarter.

The Singapore dollar’s pair fell 0.1%, while the Chinese yuan’s pair tread water amid a series of strong fixes by the People’s Bank.

The Indian rupee’s pair hovered below record highs hit earlier in April, with traders remaining wary of the currency with India’s 2024 general elections set to begin this week.