Forex
Yen jumps on suspected intervention, sterling hits one-year high
![](https://letizo.com/wp-content/uploads/2024/07/yen-jumps-on-suspected-intervention-sterling-hits-one-yearhigh_6697dd1674494.jpeg)
By Rae Wee and Dhara Ranasinghe
SINGAPORE/LONDON (Reuters) – The yen rose sharply on Wednesday in what traders suspected was likely the result of another intervention from Japanese authorities to prop up the battered currency from multi-decade lows.
The move in the yen was the standout in a busy day in currency markets, where the pound jumped after hotter than expected British inflation data and the dollar dipped across the board, with the dropping to a four-month low.
The dollar was last 1% lower against the yen at 156.75, extending its sudden fall shortly after the London trading session began, a move traders attributed to Japan’s intervention.
At one point, the dollar reached as low as 156.1 yen, having been at a 38-year high of 161.96 yen in early July.
Japan’s Ministry of Finance did not respond to requests for comment. Japan’s top currency diplomat Masato Kanda said he would have to respond if speculators caused excessive moves and that there was no limit to how often authorities could intervene, Kyodo News reported.
Bank of Japan data suggests Japan bought nearly 6 trillion yen via intervention last Thursday and Friday.
“Current valuations are still stretched and the yen is still undervalued, so a bit more activism in FX markets from Japan is the way to correct any misalignments,” said Geoff Yu, senior macro strategist at BNY Mellon (NYSE:) in London.
“But we have to wait for an official confirmation.”
The yen also made outsized gains against other currencies. The euro was last down 0.7% at 171.34 yen, while sterling fell 0.62% to 204.2yen.
INFLATION AND RATES
Elsewhere, the British pound rose 0.5% and hit a one-year high against the dollar of $1.3032 on data that showed UK inflation rose slightly more than expected.
Headline inflation held at 2% on an annual basis in June against forecasts for a 1.9% increase, while the closely watched services inflation came in at 5.7%.
That sent traders paring back bets of a rate cut from the Bank of England in August.
“Today’s strong services inflation numbers suggest the upcoming decision will be a close call,” said analysts at Nomura. “Much will now hinge on tomorrow’s labour market report, and specifically pay growth.”
The pound also strengthened to a near two-year top on the euro, which fell 0.18% to 83.85 pence, its lowest since August 2022.
There was volatility elsewhere too. The Swiss franc strengthened with the low-yielding, safe-haven currency possibly caught up in the ructions involving the yen, which has similar properties.
The dollar was down 0.66% on the franc at 0.8877, while the euro dipped 0.4% to 0.9706.
The euro gained against the dollar however, and was up 0.3% at $1.0933, a four-month high, while the Australian dollar tacked on 0.15% to $0.6747.
That left the dollar index, which tracks the unit against six peers, down 0.46% at 103.75.
Signs that inflation is slowing in the United States, boosting investor confidence that rate cuts are coming, has been weighing on the broad dollar.
Investors have fully priced in a rate cut from the Fed come September, and are expecting more than 60 basis points worth of easing by the year end.
While Tuesday’s U.S. retail sales data pointed to consumer resilience and bolstered second-quarter growth prospects, it failed to alter market views.
The New Zealand dollar was last 0.64% higher at $0.6087, helped by Wednesday’s data that showed domestically driven inflation remained high in the second quarter, even as the headline figure missed expectations.
Still, markets are sticking to bets of about three rate cuts from the Reserve Bank of New Zealand this year.
Forex
Major Russian lenders say yuan coffers empty, urge central bank action
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By Elena Fabrichnaya
MOSCOW (Reuters) – Major Russian banks have called on the central bank to take action to counter a yuan liquidity deficit, which has led to the rouble tumbling to its lowest level since April against the Chinese currency and driven yuan swap rates into triple digits.
The rouble fell by almost 5% against the yuan on Sept. 4 on the Moscow Stock Exchange (MOEX) after the finance ministry’s plans for forex interventions implied that the central bank’s daily yuan sales would plunge in the coming month to the equivalent of $200 million.
The central bank had been selling $7.3 billion worth of yuan per day during the past month. The plunge coincided with oil giant Rosneft’s 15 billion yuan bond placement, which also sapped liquidity from the market.
“We cannot lend in yuan because we have nothing to cover our foreign currency positions with,” said Sberbank CEO German Gref, stressing that the central bank needed to participate more actively in the market.
The yuan has become the most traded foreign currency on MOEX after Western sanctions halted exchange trade in dollars and euros, with many banks developing yuan-denominated products for their clients.
Yuan liquidity is mainly provided by the central bank through daily sales and one-day yuan swaps, as well as through currency sales by exporting companies.
Chinese banks in Russia, meanwhile, are avoiding currency trading for fear of secondary Western sanctions.
At the start of September, banks raised a record 35 billion yuan from the central bank through its one-day swaps.
“I think the central bank can do something. They hopefully understand the need to increase the liquidity offer through swaps,” said Andrei Kostin, CEO of second-largest lender VTB, stressing that exporters should sell more yuan as well.
The acute yuan shortage also follows months of delays in payments for trade with Russia by Chinese banks, which have grown wary of dealing with Russia after U.S. threats of secondary Western sanctions. These problems culminated in August in billions of yuan being stuck in limbo.
Russia and China have been discussing a joint system for bilateral payments, but no breakthrough is in sight. VTB’s Kostin said that since Russia’s trade with China was balanced, establishing a clearing mechanism for payments in national currencies should not be a problem.
Forex
Bank of America sees more downside for the dollar
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Investing,com – The US dollar has stabilized after a sharp fall in August, but Bank of America Securities sees more troubles ahead for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.077, having largely held its course over the last week.
That said, the US currency is still down 1.6% over the month.
The dollar’s selloff last month stood out in a historical context, according to analysts at Bank of America Securities, in a note dated Sept. 5.
The greenback has since stabilized, however, despite the outsized weakness, the US bank still sees three reasons to stay bearish on the Dollar Index (DXY).
Following similar episodes of bearish DXY breakouts, the index has tended to continue its downtrend, the bank said.
In the last 3 analogs, DXY index fell on average for another 4% before reaching a bottom. Extending this analysis to bilateral USD/G10 pairs suggests a continuation of the USD downtrend is more likely vs EUR, GBP, and AUD than SEK, NOK, and CHF in G10.
While the DXY made a new year-to-date low in August, broad nominal and real USD trade-weighted indices have stayed at Q4 2022 levels and would suggest the USD remains overvalued.
The USD selloff in 2024 has been concentrated in and other European currencies, leading to DXY divergence from other USD indices.
The bank also noted US 10y Treasury yield’s tendency to fall after the first Federal Reserve cut, while global financial conditions are set to loosen further.
“USD may see more weakness as other central banks, particularly the ones that cut policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside of the US,” BoA added.
Forex
Dollar’s demise appears overstated – JPMorgan
![](https://letizo.com/wp-content/uploads/2024/09/dollars-demise-appears-overstated-jpmorgan_66dc6b208bdf2.jpeg)
Investing.com – The US dollar has had a difficult summer, dropping substantially during the month of August, but JPMorgan thinks those predicting the demise of the U.S. currency are getting ahead of themselves.
At 06:00 ET (10:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 101.127, having lost 1.6% over the course of the last month.
“Diversification away from the dollar is a growing trend,” said analysts at JPMorgan, in a note dated Sept. 4, “but we find that the factors that support dollar dominance remain well-entrenched and structural in nature.”
The dollar’s role in global finance and its economic and financial stability implications are supported by deep and liquid capital markets, rule of law and predictable legal systems, commitment to a free-floating regime, and smooth functioning of the financial system for USD liquidity and institutional transparency, the bank added.
Additionally, the genuine confidence of the private sector in the dollar as a store of value seems uncontested, and the dollar remains the most widely used currency across a variety of metrics.
That said, “we are witnessing greater diversification and important shifts in cross-border transactions as a result of sanctions against Russia, China’s efforts to bolster usage of the RMB, and geoeconomic fragmentation,” JPMorgan said.
The more important and underappreciated risk, the bank added, is the increased focus on payments autonomy and the desire to develop alternative financial systems and payments mechanisms that do not rely on the US dollar.
“De-dollarization risks appear exaggerated, but cross-border flows are dramatically transforming within trading blocs and commodity markets, along with a rise in alternative financial architecture for global payments,” JPMorgan said.
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