(Adds comment in paragraphs 10-12, 14-15; updates prices as of 3:45 p.m. ET)
The dollar climbed to its highest level in more than a year against the Japanese yen on Monday, near the key psychological level of 152, before falling sharply in a flurry of trading in $3.45 billion of options that come due this week.
The dollar later traded little changed on expectations a soft reading of the U.S. consumer price index (CPI) on Tuesday will keep Treasury yields trending lower as the market perceives the Federal Reserve is done hiking interest rates.
The dollar early in the session shot to 151.92 yen JPY=EBS , the highest since October 2022, about 20 minutes before some $1.25 billion in options contracts were set to expire with a 152 strike price, analysts said.
The dollar suddenly dropped to 151.20, minutes after a 10 a.m. ET (1500 GMT) strike price deadline. Another $2.2 billion are set to expire on Wednesday, the analysts said.
The yen's sharp rebound against the dollar was not due to Bank of Japan intervention, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
"The dollar/yen came off after almost reaching last year's high at 10 a.m." he said. "The same thing happened in early October."
Markets have been alert to potential intervention from Tokyo to shore up the battered yen. Earlier in Japan, Finance Minister Shunichi Suzuki said the government would keep monitoring the currency market and respond appropriately.
The dollar was last up 0.12% at 151.680 yen. The yen has fallen almost 14% against the dollar so far this year.
Fed Chief Jerome Powell and policymakers want markets to be wary in the hope rates stay high and keep monetary policy tight without the need to raise the Fed's lending rate further, said Joseph Trevisani, senior analyst at FXStreet.com.
"That's why their rhetoric is much stronger than their actions right now," Trevisani said. "Rates are going to go down, bond prices are going to go up" if credit markets really think that the Fed is done raising rates, he said.
"That'll take the dollar lower because I do think the Fed is pretty much done raising rates."
The dollar index =USD , a measure of the U.S. currency against six others,
fell 0.09%
at
105.64
. The reaction to a subdued CPI number is likely to be shallowbecause U.S. retail sales on Wednesday will be more important as they should better reveal the economy's strength, said Paresh Upadhyaya, director of fixed income and currency strategy at Amundi US in Boston.
"All the signs have been pointing to continued momentum on consumption," Upadhyaya said. "If we see an upside surprise ... the markets are going to begin to price in a rate hike in December."
The market barely reacted to news late on Friday that Moody's cut the outlook for U.S. credit to negative from stable.
The euro EUR= rose
up 0.15% to
$ 1.0697as sterling strengthened after a reshuffle of key posts in the British government by Prime Minister Rishi Sunak.
Britain's currency rose about 0.44% at $1.2279 GBP=D3 and about 0.27% firmer against the euro at around 87.14 pence EURGBP=D3 after news of changes to the make-up of the UK government.
Sunak brought back former leader David Cameron as foreign minister in a reshuffle triggered by his firing of Interior Minister Suella Braverman after her criticism of the police threatened his authority.
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