Dollar at a 24-year high against the yen after a jump in US yields; choppy sterling

TOKYO (Reuters) – The dollar surged to fresh 24-year highs against the yen on Wednesday, breaching levels that prompted Japanese officials to intervene last month, as traders braced for U.S. inflation data and its implications for the Federal Reserve’s hike in interest rates.

Sterling fell to a new two-week low after Bank of England Governor Andrew Bailey reiterated that the central bank would end its emergency bond buying program on Friday and asked pension fund managers to finish rebalancing their positions within this time frame.

However, the pound rebounded slightly after a report in the Financial Times said the Bank of England had privately made up for lenders that it was willing to prolong its bond purchases. Read more

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The risk-sensitive Australian dollar fell to its lowest level in two and a half years.

The dollar rose 0.22% to 146.18 yen in Asian trading, after rising to 146.39 for the first time since August 1998.

The Japanese currency is particularly sensitive to the gap between US and Japanese long-term bond yields. The benchmark 10-year Treasury yield jumped to a 14-year high overnight at 4.006%, while the equivalent Japanese government bond yield was held near zero by the Bank of Japan.

The Japanese authorities made their first yen-buying intervention since 1998 on September 22, when the yen fell to 145.90 per dollar.

Chief Cabinet Secretary Hirokazu Matsuno said at a regular media briefing on Wednesday that officials remain ready to take appropriate steps to counter excessive currency movements.

“Given the prevailing strong dollar trend, it is possible that instead of defending the yen at a certain level, the Bank of Japan will try to slow the dollar’s ​​rally against the yen by defending at a higher level than previously,” said Alvin Tan, head of Asian currency strategy at RBC Capital Markets.

Tan, who expects the Japanese currency to fall to 150 against the dollar by the end of the year, added, “However, the BOJ is also aware of the increased volatility at the global macro level, (which) is now a bigger driver of more potential intervention than volatility in any individual currencies. “.

The Bank of Japan is an outlier among central banks in developed countries, committed to maintaining a massive bond-buying stimulus even as global policymakers embarked on a wave of tightening to curb inflation.

The US dollar index – which measures the greenback against a basket of six major peers, including the yen, the pound and the euro – rose 0.08% to 113.43, having earlier touched the highest level since September 29 at 113.59.

The euro fell to its weakest level since September 29 overnight at $0.9670 and stayed away from that level, trading 0.08% lower from Tuesday’s close of $0.96975.

Concerns that aggressive policy tightening by the Fed and most of its peers will continue to push the global economy into recession have been a major driver of risk sentiment over recent months.

The International Monetary Fund warned on Tuesday that countries that account for a third of global output could be in recession next year, even as it urged central banks to continue their fight against inflation.

Recent strong reports on the US labor market have dampened hopes among some market participants that Fed policy makers may slow the pace of rate hikes until the end of the year. Read more

Joseph Capurso, currency strategist at the Commonwealth Bank of Australia, said the US consumer price report, due on Thursday, could be a flashpoint for currency volatility, and the sharp movement in the dollar against the yen could become a catalyst for intervention.

“But we hold that any intervention moves in USD/JPY will be cleared up in a few weeks,” Capurso wrote in a note to clients.

Elsewhere, sterling, which touched $1.0925 earlier, hitting its lowest level since September 29, rose 0.4% to $1.1008 after the Financial Times report.

British Treasury yields rose earlier on Tuesday after the Bank of England governor’s comments, which lifted yields in the United States and elsewhere.

“Sterling remains at risk of a sudden drop due to uncertainty about the sustainability of government debt and the disintegration of UK pension (retirement) funds that has spilled over into the UK government bond market,” Caporso said.

The euro fell to its weakest level since September 29 overnight at $0.9670 and stayed away from that level, trading 0.08% lower from Tuesday’s close of $0.96975.

The Australian dollar fell as low as $0.62395, a level last seen in April 2020, and finally traded 0.28% weaker at $0.62555.

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Additional reporting by Kevin Buckland and Georgina Lee; Additional reporting by Vidya Ranganathan Editing by Shri Navaratnam

Our criteria: Thomson Reuters Trust Principles.

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