The U.S. dollar hit a nearly five-month high on Tuesday after stronger-than-expected economic data caused investors to cut their bets on a rate cut in June, boosting the currency.
However, fears of intervention by Japanese officials slowed the dollar’s rise against the yen even as long-term U.S. Treasury yields – which typically track the currency pair – rose to a two-week high overnight.
The dollar index rose to 105.1 on Tuesday, the highest level since November 14, following sharp gains on Monday after
US data unexpectedly showed the first expansion in the manufacturing sector since September 2022. The last reading was 105, unchanged from Monday.
The euro fell to its lowest since mid-February and was not far off November’s low, down slightly at $1.0732. Data on Tuesday showed the eurozone factory downturn worsened again in March.
Sterling was little changed at the bottom of its recent range and near its lowest since December at $1.2558.
Monday’s US ISM Manufacturing Survey data also showed a sharp rise in a measure of industry prices, raising investor concerns that inflation will slowly fall back to 2%, triggering the first Federal Reserve interest rate reduction delays will become even greater.
Chairman Fed
Jerome Powell
said Friday the central bank was in no rush to cut borrowing costs after data showed a key measure of inflation rose slightly in February.
“This (dollar) strength is an extension of the move late last week, when the Federal Reserve’s Christopher Waller gave a less dovish speech,” said Chris Turner, head of global markets at ING.
Turner said U.S. job vacancy figures could weigh on the dollar later in the day if they show a decline in job openings.
“Any reversal in the dollar’s strength – if it comes – will have to be data-driven,” he said.
YEN FLAT
The Japanese yen was flat at 151.58, after earlier falling to 151.79. The yen has traded in a tight range since hitting a 34-year low of 151.975 on Wednesday, prompting Japan to step up warnings of intervention.
On Tuesday, Finance Minister Shunichi Suzuki reiterated that he would not rule out options to respond to disorderly currency movements.
Japanese authorities intervened in 2022 when the yen slid to a 32-year low of 152 against the dollar.
The yen’s decline comes despite the Bank of Japan’s first rate hike since 2007 last month, with officials cautious about further tightening amid a fragile exit from decades of deflation.
Officials are “wary of backing themselves into a corner by drawing a line in the sand at 152,” said Nicholas Chia, Asia macro strategist at Standard Chartered.
“The motivations for clamping down and intervening in the FX markets are mainly to buy time for the JPY in the hope that the USD will lose strength and decline.”
Elsewhere, China’s yuan fell to a 4.5-month low as a strong dollar offset selling of the US currency by state-owned banks. The yuan fell to a low of 7.2357 per dollar on the day, its weakest level since November 2023.
Bitcoin fell 4.8% to $66,400 after a sudden drop of more than $3,000 in about 15 minutes in the highly volatile cryptocurrency.
