Written by Kevin Buckland
TOKYO (Reuters) – The U.S. dollar hovered near a 4-1/2-month high against major peers on Tuesday, as traders scrambled to push back on bets on the Federal Reserve’s first rate cut this year. It has changed.
The dollar held near six-week highs hit on Monday against the euro and pound after U.S. data unexpectedly showed manufacturing expansion for the first time since September 2022.
Concerns about intervention by the Japanese authorities led to a decline in the dollar, even as long-term U.S. government bond yields, to which currency pairs tend to move, rose more than 14 basis points overnight to a two-week high of 4.337%. The rise against the yen was limited.
Gold, which performs best when yields are falling, has bounced back from record highs.
U.S. interest rate futures markets are currently pricing in a 61.3% chance that the Fed will cut rates in June, down from about 70.1% a week ago, according to CME’s FedWatch tool.
“The disconnect between solid U.S. growth dynamics and the reduced risk of Fed rate cuts in response to slower growth in other currency majors means we see a decline in DXY as a buying opportunity,” said Richard Franulovich, head of currency strategy at Westpac. This suggests that it should be done.”
The dollar index, which measures the dollar against the yen, euro, pound and three other currencies, rose 0.02% to 105.02, after rising 0.51% to 105.07 on Monday.
The euro fell 0.08% to $1.0733, hovering near overnight lows of $1.0731. The pound fell 0.04% to $1.25455, after falling to $1.2540 earlier.
The Japanese yen rose slightly to 151.565 yen to the dollar on Tuesday, after falling to 151.77 yen the previous day.
Last week, the level hit a 34-year low of $151.975, prompting Japan to step up its warnings against intervention. Finance Minister Shunichi Suzuki reiterated on Tuesday that he would not rule out all options to deal with disorderly exchange rate fluctuations.
Japanese authorities intervened when the yen fell toward a 32-year low of 152 yen to the dollar in 2022.
The yen’s decline comes even as the Bank of Japan raised interest rates last month for the first time since 2007, with officials wary of further tightening as the economy’s bid to overcome decades of deflation remains fragile.
Westpac’s Franulovic said: “Despite the heightened risk of intervention, the Bank of Japan’s policy stance remains very accommodative and Japan’s statistics continue to point to the fragility of a ‘virtuous cycle’ economic recovery. ” he said.
“If an intervention occurs, the resulting flash below 150.00 could be relatively deep given the recent surge in leveraged shorts in the Japanese Yen.However, if positioning is more balanced, it could still be a buy. It is likely to be seen as an opportunity for
Elsewhere, the Australian dollar was flat at US$0.6489, after falling to a nearly one-month low of US$0.64815 on Monday.
The New Zealand dollar fell 0.07% to $0.5949, and is slowly returning to its lowest level in 4 and a half months of $0.59395 compared to yesterday.
The stock rose 0.11% to $2,253.09 after falling from the previous session’s all-time high of $2,265.49.
Bitcoin, the leading cryptocurrency, fell 0.87% to $69,158, well within a relatively narrow trading range from last week.
