The dollar was buoyant on Thursday, hovering near a two-week high as Treasury yields rose and investor appetite for riskier currencies dimmed, while the yen breached 150 per dollar to keep traders jittery about the prospect of intervention.
The Japanese yen JPY=EBS weakened to hit a fresh one-year low of 150.48 per dollar and was not far off the 32-year low of 151.94 per dollar it touched in October last year that led to Japanese authorities intervening in the currency market.
Japanese Finance Minister Shunichi Suzuki warned traders against selling the yen again on Thursday, saying authorities were closely watching moves. "I'm watching market moves with a sense of urgency, as before," he told reporters at his ministry.
Suzuki made no direct comment about the potential for intervention.
"Given the cap on Japanese yields, something had to give in the context of enduring dollar strength on the back of U.S. macroeconomic resilience," said Nicholas Chia, macro strategist at Standard Chartered.
A recent surge in global interest rates is heightening pressure on the Bank of Japan to change its bond yield control next week. A hike to an existing yield cap set three months ago being discussed as a possibility, sources have told Reuters.
Japan's low yields have made the currency an easy target for short-sellers and funding trades, with the widening gap in the interest rates between Japan and the United States leading to persistent weakness in the yen.
The yen has fallen over 20% since the U.S. Federal Reserve began rapidly raising rates to combat inflation in March 2022, while the BOJ remains an outlier among central banks and has stuck to its ultra lose monetary policy.
"Any judgment on the yen also needs to account for the central bank's reaction function," said Chia. "In other words, there is the risk of an earlier-than-envisaged policy shift by the BOJ, given its track record of surprising markets."
U.S. GDP data due later on Thursday is a key event risk for dollar/yen, according to Carol Kong, currency strategist at Commonwealth Bank of Australia, who said a strong report may pressure U.S. yields higher and result in the yen testing fresh lows.
Benchmark U.S. 10-year Treasury yields inched higher, resuming a move toward a 16-year peak of 5.0% briefly breached on Monday. The 10-year yield US10YT=RR was at 4.959% on Thursday.
The Australian dollar AUD=D3 slid to a one-year low of $0.6271 and was last down 0.49% at $0.6278. A surprisingly high reading for inflation on Wednesday stoked expectations of a further hike in interest rates.
The head of Australia's central bank on Thursday said the strong third-quarter inflation report was around policymakers' expectations, and they were still considering whether it would warrant a rate rise.
The New Zealand dollar NZD=D3 touched a near one-year low of $0.5774 and was last down 0.38% at $0.5779.
SPOTLIGHT ON ECB Investor focus will be on the policy decision from the European Central Bank later in the day, with the euro EUR=EBS touching one week low of $1.0542 earlier in the session. The single currency was last down 0.17% at $1.0545.
The ECB is expected to keep interest rates unchanged at a record high, snapping a 15-month streak of hikes. It may discuss a quicker reduction of its oversized portfolio of government debt as it battles excessive inflation.
"With the European economy soft and inflation easing, we expect attention will soon turn to the likely timing of rate cuts," said CBA's Kong.
"At this stage we have the first cut pencilled in for June 2024. Soft European economic data and negative interest rate differentials between Europe and the U.S. will likely keep a lid on euro/dollar."
Sterling GBP=D3 was last at $1.2081, down 0.23% on the day, having touched a three week low of $1.2077 earlier in the session.
Against a basket of currencies, the dollar =USD was 0.188% higher at 106.75 after touching a two week peak of 106.78.
The Canadian dollar CAD= fell 0.15% versus the greenback to 1.38 per dollar after the Bank of Canada held its key overnight rate at 5.0% as expected but left the door open to more rate hikes to tame inflation.
The Fed and the BOJ meet next week. In cryptocurrencies, bitcoin BTC= last rose 0.1% to $34,714.14. The world's largest cryptocurrency has surged 15% this week on the back of speculation that an exchange-traded bitcoin fund is imminent.
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