The U.S. dollar hit a nearly five-month high on Tuesday as stronger-than-expected economic data reduced investors’ bets on a June rate cut, 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, and added sharp gains on Monday after US data unexpectedly showed the first increase in the manufacturing sector since September 2022. The last reading was 104.92, up slightly decline.
The euro fell to its lowest since mid-February at the end of the Asian session, but was last little changed at $1.0745. Data on Tuesday showed the eurozone factory downturn worsened again in March.
Sterling rose to $1.2563 from its lowest since December after data showed the manufacturing sector improved last month.
Monday’s US ISM Manufacturing Survey data 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 became even greater.
Fed Chairman 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 last flat at 151.67 per dollar, after earlier falling to 151.79. The yen has been trading 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 7.2364 per dollar on the day, its weakest level since mid-November.
Bitcoin fell 6.5% to $65,250 after a sudden drop of more than $3,000 in about 15 minutes in the highly volatile cryptocurrency.
The Swiss franc reached its lowest point since early November at 0.909 against the dollar. The currency has fallen about 2.5% since the Swiss National Bank unexpectedly cut interest rates on March 21.
