The dollar headed for a second straight quarterly gain and jumped to a near four-decade high against the battered yen in Asian trade on Friday, ahead of a crucial U.S. inflation reading.
Neither the overnight drop in U.S. yields nor data showing a solid rise in consumer prices in Tokyo could stem the slide in the Japanese currency, which fell to its lowest since 1986 at 161.155 per dollar.
For the quarter it fell 6% against the dollar and for the year so far it has lost 12% – the biggest drop of any G10 currency. At 172.37 per euro it hit an all-time low for the common currency, as yen bears test the authorities’ resolve.
Low Japanese interest rates encouraged the selling of yen in favor of higher-yielding currencies, the so-called “carry trade”, even as Japanese yields began to rise and Japanese officials warned of another round of monetary interventions. currency.
“The thirst for carry in a low volatility environment remains,” National Australia Bank head of foreign exchange strategy Ray Attrill said in Sydney.
“Having gotten above 160 (per dollar) without intervention, I don’t think the market is as fearful as it might have been in the run-up to 160.”
Core inflation in Japan’s capital accelerated in June, data showed Friday, fueling expectations for some small interest rate hikes in the second half of 2024.
Elsewhere, the dollar was firm in the Asian morning as the first US presidential debate between Republican candidate Donald Trump and Democratic President Joe Biden got underway in Atlanta.
The euro fell 0.1% to $1.0691 and the pound weakened slightly to $1.2626. The Australian dollar fell 0.4% to $0.6623, although it is on track for a gain of about 1.6% on the quarter, as sticky inflation dashed expectations of an Australian rate cut soon.
The New Zealand dollar fell 0.3% to $0.6065 on Friday, but is up 1.5% for the quarter. The U.S. dollar index strengthened 0.2% to 106.07 on Friday, for a quarterly gain of 1.5%.
Dollar strength and the U.S. budget were possible topics for the Biden-Trump debate, although NAB’s Attrill said many market participants would be watching if Biden was sharp and up to the task.
Later in the day, traders are anxiously awaiting the U.S. personal consumption expenditures price index, the Federal Reserve’s preferred measure of inflation, and expect annual growth to have eased to 2.6% in May, the slowest in more than three years.
