Forex
Yen hits 4-week low, dollar steady ahead of key inflation data
By Hannah Lang and Alun John
NEW YORK/LONDON (Reuters) -The dollar held firm on Wednesday, boosted by higher U.S. yields ahead of key inflation data later in the week, and gaining on the Japanese yen as placid markets encouraged investors to resume carry trades.
The dollar reached as high as 157.41 yen early on Wednesday, inching back to levels that led to bouts of likely intervention from Tokyo at the end of April and early May, albeit rising at a much slower pace than it did last month.
It was last at 157.275 yen, up 0.06% on the day.
“Generally, across Asian currencies, that relief rally post-CPI is starting to fade, as U.S. easing expectations are trimmed and some rocky bond auctions cause yields to climb back up, placing the yen and under pressure,” said Simon Harvey, head of FX analysis at Monex Europe.
Slightly softer U.S. consumer price inflation data this month weakened the dollar across the board. Since then, however, U.S Treasury yields have resumed their climb, with benchmark 10-year yields their highest in almost four weeks at 4.57%.
A lacklustre auction of two-year and five-year notes on Tuesday that raised doubts about demand for U.S. government debt, and data showing that U.S. consumer confidence unexpectedly improved in May, were the drivers of the move higher in yields.
The was last at 104.83, up 0.16%. The U.S. core personal consumption expenditures (PCE) price index report – the Federal Reserve’s preferred measure of inflation – will be released on Friday. Expectations are for it to hold steady on a monthly basis.
Leaving aside the Japanese yen, “most of the foreign currencies have rallied…against the U.S. dollar since the middle of April,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “I’m thinking that that move is over and we should look for a dollar rebound.”
The China-exposed dollar was down 0.32% at $0.6628, even after Australian consumer price inflation unexpectedly rose to a five-month high in April, adding to risks that the next move in local interest rates might be up. [AUD/]
Also in the mix for the yen was the carry trade, where investors borrow in a low-yielding currency to invest in higher yielders.
“The yen remains under considerable downward pressure with carry appetite elevated due to low FX volatility,” Derek Halpenny, head of research global markets EMEA at MUFG, said in a note, pointing to elevated levels in euro/yen and sterling/yen.
The euro spent European trading reacting to German regional inflation data, dropping to a near two-year low on the pound of 84.84 pence.
It then recovered after nationwide data showed German inflation rose slightly more than expected to 2.8% in May, though a level that is unlikely to do anything to disrupt expectations for a European Central Bank rate cut next month.
The common currency was last flat versus the dollar at $1.0834.
The pound was a touch lower on the dollar at $1.274, having hit a two-month high the day before.
The People’s Bank of China (PBoC) responded to increasing demand for the US dollar by adjusting its cross-border macroprudential parameter.
The central bank’s decision to raise the parameter from 1.50 to 1.75 allows domestic corporations and financial institutions to engage in more cross-border borrowing.
The adjustment came as the foreign exchange settlement balance for banks’ clients showed a deficit of $10.5 billion, marking the first negative reading since July 2024. This deficit contrasts with the previous month’s figures. The rise in demand for the US dollar was particularly noticeable in service trade transactions.
Recent weeks have seen domestic importers actively purchasing US dollars through foreign exchange forwards. This move is a strategy to hedge against potential risks associated with tariffs, which has contributed to an upward push on forward points.
The PBoC’s policy change on January 13 reflects efforts to manage market expectations regarding foreign exchange rates.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
On Wednesday, Macquarie analysts provided insights into the potential future movements of the Canadian dollar (CAD) against the US dollar (USD).
They indicated that the fears of heavy-handed US import tariffs are unlikely to materialize immediately after the inauguration, suggesting that the USD’s rally against the EUR, CAD, and other currencies might not extend beyond the first quarter of the year.
The analysts highlighted that despite the initial threats of tariffs, Canada is expected to grow even closer to the United States in the coming years. This projection is based on several factors including Canada’s domestic politics, foreign policy, border and immigration policies, as well as trade and capital account flows, all of which demonstrate aligned interests with the US. The anticipated renegotiation of the United States-Mexico-Canada Agreement (USMCA) is expected to cement this relationship further.
According to Macquarie, this closer relationship between Canada and the US will lead to a much more stable exchange rate in the future. They predict that as a result of these developments, the USD/CAD pair will experience a downward drift, potentially reaching a mid-year target of 1.35.
The stability in the USD/CAD exchange rate is seen as a reflection of the ‘merger trend’ context, where the two economies continue to integrate and align, leading to less exchange rate fluctuation. Macquarie’s analysis projects a calmer period ahead for the currency pair, which has historically been influenced by trade policies and geopolitical factors.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
Investing.com – The US dollar lifted slightly Thursday, but remained in a tight trading range ahead of a speech by President Donald Trump at the World Economic Forum.
At 04:15 ET (09:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher to 108.150, after starting the week with a drop of over 1%.
Dollar treads water
The dollar has largely treaded water over the last couple of days as traders await more clarity over President Donald Trump’s plans for tariffs, following the sharp fall on Monday as his first day in office brought a barrage of executive orders, but none on tariffs.
He has subsequently talked about levies of around 25% on Canada and Mexico and 10% on China from Feb. 1, as well as mentioning duties on European imports, but without concrete action.
Trump speaks later in the session at the World Economic Forum in Davos, Switzerland, and traders are eagerly awaiting any comments on this topic as well as for his position on major geopolitical and economic issues such as the Ukraine-Russia war and the economic rivalry with China.
“This week’s dollar correction has not gone too far. Despite the heavy one-way positioning of the dollar, investors lack clarity on the timing of Trump’s tariff threats, preventing them from reducing dollar holdings,” said analysts at ING, in a note.
Also causing traders to pause for breath is the spate of central bank policy decisions due over the next week, including the on Friday, ahead of the and the next week.
Euro lower ahead of ECB meeting
In Europe, slipped 0.1% lower to 1.0404, with the single currency weak ahead of next week’s ECB meeting, with an interest rate cut largely seen as a done deal.
“This week’s EUR/USD bounce has been pretty muted so far,” said ING. “There is no way investors can expect to hear an ‘all-clear’ signal on tariffs. And keeping trading partners off balance/guessing is a tactic that kept the dollar reasonably well bid during Trump’s last tariff regime in 2018-19.”
traded 0.1% lower to 1.2304, while rose 0.2% to 11.3035 ahead of a policy-setting meeting by the later in the session.
“Norges Bank is widely expected to keep rates on hold today,” ING said. “On the whole, the key variables monitored by NB have not clearly argued a rate cut should be pushed beyond March. Also, the risks to global growth related to Trump’s protectionism plans should encourage policymakers to allow some breathing room with a rate cut before the end of the first quarter.”
BOJ meeting to conclude Friday
In Asia, traded largely unchanged at 156.47, ahead of the Bank of Japan’s two-day policy meeting, which concludes on Friday.
The BoJ is widely expected to raise interest rates as recent inflation and wage data have been encouraging, and the central bank is likely to signal further interest rate hikes if the economy maintains its recovery
traded 0.2% higher to 7.2877, with the Chinese currency weaker on fears Trump will confirm US tariffs on Chinese imports, hitting the second largest economy in the world.
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