Dollar held back by the threat of Japanese intervention, yen fragile

Dollar held back by the threat of Japanese intervention, yen fragile
Dollar held back by the threat of Japanese intervention, yen fragile

The dollar pulled away from the key 160 yen level on Tuesday, as fears of intervention by Japanese officials deterred traders from punishing the yen too harshly against other currencies.

Elsewhere, bitcoin recovered some ground after its worst day in more than two months earlier in the week, partly thanks to outflows from bitcoin exchange-traded funds (ETFs), analysts said.

The dollar fell 0.1% to 159.43 yen, remaining in a narrow range, as traders remained cautious about testing the level that prompted Tokyo’s 9.79 trillion yen currency intervention (61, 33 billion dollars) between the end of April and the beginning of May.

This has kept the yen in a holding position and prevented it from hitting new lows against other currencies, with the pound sitting just below a 16-year high at 202.34 yen.

“The market is showing … that it is nervous and very concerned about this situation,” said Chris Weston, head of research at Pepperstone.

“There are inherent risks in being short the Japanese yen right now as a carry trade, which is obviously what (authorities) want to see.”

“The first thing to do is tell currency speculators and people holding carry trades that you are warned: If you hold these positions now, you run the risk of a 400 or 500 percentage point drop in the dollar/yen.”

The yen’s latest decline came following the Bank of Japan’s (BOJ) June policy meeting, where policymakers disappointed investors who were betting on an immediate reduction in the BOJ’s massive bond purchases.

Meeting minutes released on Monday showed the central bank discussed the possibility of raising short-term interest rates, with one policymaker calling for an increase “without too much delay.”

In the broader market, the dollar weakened slightly ahead of Friday’s release of the U.S. Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred measure of inflation.

The pound rose 0.1% to $1.2691, while the Australian dollar was flat at $0.6656.

The Chinese yuan also came under pressure, weakening to 7.2626 to the dollar, just shy of the central bank’s lower daily trading limit of 7.265 on Tuesday.

The yuan has never crossed this threshold.

POLITICS IN THE FOREGROUND

Politics has also been at the forefront of investors’ minds, with the first U.S. presidential debate between President Joe Biden and his predecessor Donald set for Thursday and the French election starting this weekend.

The euro, which has come under pressure from political turmoil in France in the wake of President Emmanuel Macron’s snap election earlier this month, fell 0.1% to $1.0721, a monthly loss of 1% .

However, the price of the dollar still sits in the $1.07-1.08 range that it has held for most of the year.

“It looks to me more and more that it will take a big surprise to get the rate out of this range sustainably,” said Volkmar Baur, a strategist at Commerzbank.

On the markets front, Baur cited Friday’s US core inflation data as one potential catalyst and next week’s German and French inflation data as another.

On the political front, Baur noted that Sunday’s elections in France are only a first round of voting and the results “would have to differ significantly from the polls” to have much impact.

The dollar remained firm at 105.51 against a basket of currencies.

In cryptocurrencies, bitcoin rose 3.1% to $61,348, recovering part of the previous day’s 6.65% decline, driven by continued investment outflows.

“We saw a decline, we saw six days in a row of funds exiting bitcoin cash ETFs,” Pepperstone’s Weston said.

“Bitcoin, to me, is… a momentum vehicle, and momentum works both ways. If it’s going one direction and the rate of change is increasing, to me, you stand back and let it the selling occurs until it can form a base. And right now, the momentum is down.”

(1 dollar = 159.6300 yen)

 
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