By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The yen fell to its lowest against the U.S. dollar in almost 38 years on Wednesday as wide interest rate differentials between the two economies in favor of the dollar continued to plague the Japanese unit, leaving traders alert for any sign of intervention by Japan to boost its currency.
The US dollar rose to a high of 160.82, its strongest level since December 1986. The dollar was last up 0.7% at 160.697 yen. So far this year, the dollar is up about 14% against the yen.
The euro also rose against the yen, rising to 171.79, its highest level since September 1992. The euro was last up 0.3% at 171.625.
Japan’s low interest rates, compared to those of the United States, have put pressure on the yen. While Japan has raised rates this year to a range of zero to 0.1%, US yields of 5.25% to 5.5% mean investors are flocking to dollar assets for higher returns.
Investors take advantage of the large difference in interest rates in the two countries by implementing so-called carry trade strategies, in which investors borrow in low-yielding currencies to invest in higher-yielding currencies. Carry trades have become extremely popular as some countries have increased their financing costs in recent years.
Analysts say traders are testing the resolve of Japan’s finance ministry, which spent $62 billion in late April and early May to support the currency as it fell above 160.
“Interventions tend to slow the market overall, but they struggle to significantly reverse the direction of the market unless there is a major change in underlying monetary policy stances,” said Vassili Serebriakov, currency strategist at UBS in New York .
“It would be stronger for the dollar/yen if the Bank of Japan were to raise rates more aggressively, or if the Federal Reserve were to cut rates. But absent both developments, I’m not sure we can see a significant turnaround. But intervention certainly can be.” limit his advantage.”
Japan’s top currency diplomat Masato Kanda on Wednesday stepped up warnings about excessive currency movements, saying authorities are “deeply concerned and on high alert” about the yen’s rapid decline.
He noted that the current weakness of the yen is not justified.
However, there is a chance of a further rate hike by the Bank of Japan at the end of July, which could support the yen.
The , which tracks the currency against six peers, rose 0.4% to 106.05.
SOFT US HOUSING DATA, PCE NEXT
New home sales in the US were weaker than expected. Sales of new U.S. single-family homes fell to a six-month low in May and fell 11.3% last month to a seasonally adjusted annual rate of 619,000 units. The dollar showed little reaction to the data, adding to growing evidence that the world’s largest economy is slowing.
The market’s next focus on Friday will be on the US personal consumption expenditures (PCE) index, the Fed’s preferred gauge of inflation. Investors want to see whether price pressure in the economy is moving in the right direction. A lower-than-expected figure could trigger an increase in interest rate cuts this year, which could mean some relief for the yen.
“The PCE is less likely to get outsized data than if you measured the CPI (consumer price index),” says Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey. “That said, there needs to be a very large variation in the PCE to change the dynamics of rate cuts.”
The euro fell 0.3% to $1.0679 after a European Central Bank policymaker talked about the chances of further rate cuts this year, a markedly different view from the Fed’s Michelle Bowman.
ECB board member Olli Rehn told Bloomberg that two more cuts this year seemed “reasonable.” That contrasted with Bowman, who said she expected no rate cuts in the US this year.
Elsewhere, Australian inflation accelerated to a six-month high of 4% in May, with traders rushing to assess a high chance of a further rate hike in November. The dollar rose 0.1% against the US dollar to $0.6655.[AUD/]
The pound sterling fell 0.5% against the dollar to $1.2627.
The yuan also came under pressure from the dollar’s stubborn strength, with China apparently showing some tolerance for a cheaper currency by gradually weakening the midpoint of the yuan’s daily trading margin against the dollar.
The yuan, which has been at the low end of its range for months, fell to a seven-month low of 7.2671 per dollar on Wednesday. [CNY/] The dollar was last little changed at 7.2667.
Currency
bid
prices at
June 26
06:58
pm GMT
Description RIC Last US Pct YTD Pct High Low
change bid at Close
Last
Session
Dollar 106.03 105.67 0.36% 4.60% 106.13 105.
index 6
Euro/pop 1.068 1.0715 -0.32% -3.24% $1.0718 $1.0
ar 666
Dollar/Year 160.69 159.62 0.68% 13.94% 160.79 159.
no. 705
Euro/yen 1.068 171.06 0.32% 10.26% 171.79 170.
86
Dollar/SW 0.8972 0.8947 0.27% 6.59% 0.8983 0.89
iss 48
Sterling/ 1.2621 1.2686 -0.49% -0.8% $1.2694 $1.0
Dollars 666
Dollar/Approx 1.3701 1.3659 0.33% 3.37% 1.3705 1.36
nadian 51
Australia/Thurs 0.6649 0.6648 0.03% -2.46% $0.6689 $0.6
lar 636
Euro/Swiss 0.958 0.9583 -0.03% 3.17% 0.96 0.95
s 62
Euro/Star 0.846 0.8444 0.19% -2.4% 0.8463 0.84
ling 34
New Zealand 0.6076 0.612 -0.67% -3.8% $0.6128 0.60
Dollar/Do 76
llar
Dollar/no 10.6817 10.6123 0.65% 5.39% 10.7127 10.5
highway 994
Euro/Norwegian 11.4082 11.373 0.31% 1.64% 11.4332 11.3
yes 39
Dollar/ZW 10.5726 10.5065 0.63% 5.02% 10.6175 10.4
Eden 833
Euro/Sweden 11.2927 11.256 0.33% 1.5% 11.3251 11.2
en 399
