The dollar maintained its stability on Wednesday, with the yen continuing to struggle near its lowest point in 34 years. This comes after Federal Reserve Chair Jerome Powell and other officials suggested that U.S. interest rates might remain elevated for an extended period. Despite previous speculations of rate cuts, Powell emphasized the necessity of a restrictive monetary policy for a longer duration to counter strong U.S. economic indicators and persistent inflation.
On Tuesday, the euro was trading at $1.0621, close to its five-and-a-half-month low of $1.06013, while the dollar index nearly reached a five-month high at 106.51, marking a 5% increase this year. Powell’s remarks have adjusted market expectations, with predictions now setting September as the potential start for easing policies, a shift from earlier predictions of June. Consequently, the market now anticipates a mere 40 basis points cut in 2024, a significant reduction from the initially expected 160 basis points.
The yen’s plight worsens as U.S. yields rise, with the 10-year Treasury yields hitting a five-month peak at 4.696%. The Japanese currency, which last traded at 154.63 per dollar, is particularly sensitive to these yields. Despite Japan’s intervention in the currency market in 2022, where approximately $60 billion was spent to support the yen, further intervention might require even more substantial efforts given the current economic backdrop. Meanwhile, other major currencies like the sterling and the Australian dollar are also feeling the pressure, with the latter managing a slight recovery.
