Yen Rebounds, Dollar Still Supported by Yields
The Japanese yen strengthened after previously falling to its weakest level in 40 years against the US dollar on Wednesday (July 22nd). USD/JPY fell 0.3% to 162.69 after a report emerged that the Bank of Japan was opening the door to a faster interest rate hike.
Sentiment on the yen improved as BoJ officials reportedly saw the yen's weakness and rising inflation as reasons to act more quickly. Currency markets now estimate an 82% chance the BoJ will raise interest rates in October, up from 72% before the report.
However, the yen's strength was short-lived. USD/JPY stabilized around 163.00 as Middle East tensions continued to push oil prices higher and kept the US dollar supported by safe-haven demand.
The US dollar index moved relatively stable in today's trading. Meanwhile, the 10-year US Treasury yield held around 4.63%, maintaining the dollar's appeal amid concerns about energy inflation and geopolitical risks.
In other currencies, the pound sterling moved flat around 1.3372 against the US dollar after data showed UK inflation fell to its lowest level in more than a year. Despite the slowdown in inflation, markets still expect the Bank of England to raise interest rates by at least one more 25 basis points by the end of the year.
The euro briefly strengthened 0.2% to 1.1418 against the US dollar before paring its gains. Investors now await the European Central Bank's decision on Thursday, with short-term volatility increasing as markets look for signals on the next direction in monetary policy.
Japanese Finance Minister Satsuki Katayama also gave a firm signal that the government is ready to take appropriate and bold action in the foreign exchange market if necessary. This statement came after the US-Iran conflict was seen as suddenly escalating and increasing pressure on the yen.
As a result, the possibility of a faster BoJ interest rate hike could help contain the yen's weakness and increase the risk of intervention if USD/JPY continues to rise. However, as long as US Treasury yields remain high, the dollar index is stable, and the Middle East conflict maintains demand for safe havens, the potential for strengthening of the yen, euro, and pound remains limited. (arl)
Source: Newsmaker.id
