Due to a combination of unexpectedly strong European activity figures and slowing US business growth, the dollar suffered significant losses versus the euro and sterling on Wednesday.
Even so, the yen continued to hover at a 34-year low in relation to the US dollar, despite increased intervention warnings from Japanese authorities.
The dollar index, which compares the value of the dollar to six major currencies, including the euro, sterling, and yen, remained unchanged at 105.64 in early Asian trading following an overnight decline of 0.4% that saw it hit its lowest point since April 12 at 105.23.
After a 0.45% increase on Tuesday, the euro was little changed at $1.069975 as data indicated that the euro zone’s business activity rose at its quickest rate in a year, due to a recovery in services.
On the other hand, lower demand caused US business activity to decline in April to a four-month low, and inflation rates somewhat decreased, indicating that the Federal Reserve may be on the verge of relief.
The release of the PCE deflator, the Fed’s preferred measure of consumer inflation, on Friday, will be a significant test of that. Based on the CME’s FedWatch tool, markets are pricing in a 73% possibility of a first-rate cut by September.
In other news, the Australian dollar, which fell to a five-month low on Friday, has recovered more than 1% over the last two days to trade at its highest level since April 15 at $0.64875 ahead of consumer inflation data.
Last week, the dollar index hit a 5-1/2-month high of 106.51 as ongoing inflation drove Fed officials to signal no rush to ease policy.
The dollar managed to rise somewhat on Tuesday despite its overall difficulties, reaching a new 34-year high against the yen at 154.88. Between that high and a low of 154.50 this week, the pair has fluctuated in an incredibly narrow range, making traders cautious that a push over 155 could increase the likelihood of dollar-selling intervention by Japanese officials.
Shunichi Suzuki, the finance minister of Japan, warned of the possibility of intervention on Tuesday in the sharpest warning to date. He said that Tokyo was prepared to act against excessive currency moves after meeting with counterparts in the United States and South Korea last week.
At the end of a two-day meeting, the Bank of Japan is generally expected to maintain current policy settings and bond purchase amounts.
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