By Chuck Mikolajczak
NEW YORK (Reuters) -The yen stumbled against the dollar on Tuesday, giving up some of its sharp gains in the previous session, fueled by suspected intervention by Japanese authorities, while a flood of U.S. economic data largely supported the dollar.
The yen weakened 0.66% against the dollar to 157.35 per dollar, but was still above a 34-year low of 160.245 on Monday, as traders said Tokyo’s yen buying intervention would strengthen about five yen provided.
This gained ground after economic data showed US labor costs rose more than expected in the first quarter, amid a rise in wages and benefits. This confirms the rise in inflation early this year, which is likely to delay a long-awaited interest rate cut later this year.
“The trend is still higher for the dollar/yen, we really need to see both policy divergences converge a bit, let the US bond market catch a more sustainable bid that takes the dollar-yen further off the highs, perhaps a few weekly lower lows or some change in the BOJ’s rhetoric, but I think it should be the latter,” said Erik Bregar, director of FX and precious metals risk management, at Silver Gold Bull in Toronto.
Japanese officials may have spent as much as 5.5 trillion yen ($35.05 billion) on supporting the currency on Monday, data from the Bank of Japan suggested on Tuesday.
The Bank of Japan (BOJ) on Tuesday left unchanged its monthly bond purchase plan for May. Japanese government bond (JGB) investors are looking for clues on the timing of a taper that will lead to higher, more attractive yields, supporting the yen.
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This comes as the Fed begins its two-day monetary policy meeting on Tuesday, where it is widely expected to keep interest rates at 5.25%-5.5%, while Chairman Jerome Powell’s comments will be closely watched on signs of the central bank’s policy path in the light. of recent data on inflation and the labor market.
According to CME Group’s (NASDAQ:) FedWatch Tool, markets continue to lower expectations for the timing of a rate cut this year, with the probability of a September cut of at least 25 basis points (bps) just below 50% .
The dollar index rose 0.37% to 106.08, while the euro fell 0.27% to $1.069. Sterling weakened 0.34% to $1.2518.
Inflation data from France and the eurozone released on Tuesday increases confidence that the European Central Bank (ECB) will be able to start cutting interest rates in early June, according to ECB policymaker Francois Villeroy de Galhau, while European Union policymaker Pablo Hernandez de Cos Central Bank said the ECB should do that. Start cutting rates in June if inflation continues to decline gradually as expected.
Eurozone inflation remained stable in April as expected, but a crucial indicator of underlying price pressures slowed.
