Illustrative banknotes of Japanese yen and U.S. dollar are depicted in the accompanying image taken on September 23, 2022.
The U.S. dollar remained strong on Thursday, nearing a two-week high due to the rise in Treasury yields and waning interest in riskier currencies. Concurrently, the yen breached 150 against the dollar, raising concerns among traders about potential intervention by Japanese authorities. The yen reached a one-year low of 150.48 per dollar, coming close to the 32-year lowest point of 151.94 per dollar observed in October of the previous year, which prompted intervention by Japanese policymakers. Japanese Finance Minister Shunichi Suzuki cautioned against further yen sales, emphasizing close monitoring by authorities. Although he did not explicitly mention intervention, his words instilled a sense of urgency.
The attractiveness of the yen for short-selling and funding trades has been amplified by Japan's low yields. The significant interest rate differential between Japan and the United States has resulted in persistent yen weakness. Since the U.S. Federal Reserve began rapidly raising rates to combat inflation in March 2022, the yen has depreciated by over 20%, while the Bank of Japan (BOJ) has diverged by maintaining its ultraloose monetary policy.
The upcoming release of U.S. GDP data on Thursday is anticipated to have an impact on the dollar/yen pair. According to Carol Kong, a currency strategist at the Commonwealth Bank of Australia, a robust report might drive U.S. yields higher and induce the yen to test new lows. Benchmark U.S. 10-year Treasury yields inched up, continuing their ascent towards a 16-year peak of 5.0% that had briefly been surpassed on Monday. On Thursday, the 10-year yield stood at 4.959%.
Furthermore, inflation concerns caused the Australian dollar to fall to a one-year low of $0.6271, eventually dropping by 0.49% to $0.6278. The Reserve Bank of Australia's governor stated that the third-quarter inflation report aligned with policymakers' expectations, and they were still deliberating whether it warranted a rate increase. Similarly, the New Zealand dollar touched a nearly one-year low of $0.5774 before declining by 0.38% to $0.5779.
Market participants eagerly anticipate the European Central Bank's policy decision, which is scheduled for later in the day. This development caused the euro to reach its lowest point in a week, briefly reaching $1.0542 before settling at a 0.17% decline to $1.0545. It is expected that the ECB will maintain its record high interest rates, thereby concluding a streak of 15 consecutive hikes. However, the institution may discuss an accelerated reduction of its excessive government debt holdings due to ongoing battles against inflation, as noted by CBA's Kong.
The pound sterling experienced a 0.23% decrease on the day, reaching $1.2081 after touching a three-week low of $1.2077 earlier in the trading session. Against a basket of currencies, the dollar rose by 0.188% higher to reach 106.75, reaching a two-week peak of 106.78.
Following the Bank of Canada's decision to keep its key overnight rate at 5.0%, in line with expectations, the Canadian dollar depreciated by 0.15% against the greenback, resulting in an exchange rate of 1.38 per dollar. The bank, however, did not rule out the possibility of future rate hikes to curb inflation.
Notably, the Federal Reserve and the Bank of Japan have upcoming meetings scheduled for the following week. In terms of cryptocurrencies, bitcoin experienced a slight increase of 0.1% to reach $34,714.14. This surge is believed to be influenced by speculation regarding the imminent launch of a bitcoin exchange-traded fund.