The U.S. dollar hovered near a 4-1/2-month high against major peers on Tuesday as traders rushed to trim bets on the Federal Reserve’s first rate cut this year.
The dollar remained close to a six-week peak against the euro and sterling reached on Monday after US data unexpectedly showed the first increase in manufacturing since September 2022.
Fears of intervention by Japanese officials limited the dollar’s gains against the yen even as long-term U.S. Treasury yields – which tend to follow the currency pair – rose more than 14 basis points overnight to a two-week high of 4.337% .
Gold, which performs best when interest rates fall, bounced back from a record high.
The U.S. interest rate futures market is now pricing in a 61.3% chance of a Fed rate cut in June, up from about a 70.1% chance a week ago, according to the CME’s FedWatch tool.
“The divergence between solid growth momentum for the US and declining risk of a Fed rate cut versus sluggish growth for other FX majors suggests that any DXY dips should be viewed as buying opportunities,” said Richard Franulovich, head of currency strategy at Westpac, referring to the dollar index.
The dollar index, which measures the currency against the yen, euro, pound sterling and three other peers, settled 0.02% higher at 105.02, after rallying 0.51% to 105.07 on Monday.
The euro slipped 0.08% to $1.0733, close to overnight lows of 1.0731. Sterling was 0.04% lower at $1.25455, after falling to $1.2540 in the previous session.
The Japanese yen strengthened slightly on Tuesday at 151.565 per dollar, after plunging to 151.77 the day before.
The yen hit a 34-year low of 151.975 last week, prompting Japan to step up warnings about intervention. Finance Minister Shunichi Suzuki reiterated on Tuesday that he would not rule out any option 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.
“Despite the increased risk of intervention, the BOJ’s policy stance remains very accommodative and Japan’s data continues to demonstrate the fragility of its ‘upward spiral’ of economic recovery,” Westpac’s Franulovich said.
“If action is taken, the rise in USD/JPY below 150.00 could be relatively large given the recent surge in leveraged shorts in JPY. However, they are likely to still be seen as buying opportunities once positioning becomes more balanced is.”
Elsewhere, the Australian dollar was flat at $0.6489, after sliding to a near one-month low of $0.64815 on Monday.
The New Zealand kiwi dollar fell 0.07% to $0.5949, returning to overnight’s 4.5-month low of $0.59395.
Spot gold rose 0.11% to $2,253.09, after falling from a record high of $2,265.49 in the previous session.
Leading cryptocurrency bitcoin fell 0.87% to $69,158, but remained well within its relatively narrow trading range over the past week.
