US dollar dips as Japan and China fortify their currencies

THE US dollar slipped on Monday (Mar 25), with the threat of currency intervention from Japanese authorities and a government-driven rally in China’s yuan weighing on the US currency.

The Japanese yen was around 0.1 per cent higher and last stood at 151.29 per US dollar, having bottomed at a four-month trough of 151.86 last week that left it within striking distance of a 32-year low near 152 per US dollar hit in 2022.

A rise in the yen helped push the US dollar index down 0.16 per cent to 104.26, after a weekly gain of nearly 1 per cent last week.

Japan’s top currency diplomat said on Monday the yen’s weakness did not reflect fundamentals, adding to the rhetoric of government officials who have stepped up warnings in recent days over the currency’s decline.

The yen has dropped despite the Bank of Japan hiking interest rates out of negative territory last week. Traders think rates in Japan will remain low for some time and therefore the big interest rate gap with the US will stay in place, boosting the appeal of the US dollar.

“Japanese officials’ verbal intervention is making 152 a very strong near-term resistance for US dollar/yen,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. “I think that’s keeping US dollar/yen from moving substantially higher.”

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China’s yuan found some strength on Monday, climbing roughly 0.2 per cent in onshore markets to 7.21 to the US dollar, while its offshore counterpart rose around 0.4 per cent.

Sources told Reuters that China’s major state-owned banks were seen to be selling US dollars for yuan in onshore markets on Monday, helping reverse a sudden fall at the end of last week.

The Chinese currency has been pressured by growing market expectations of further monetary easing to prop up the world’s second-largest economy.

“The support to the renminbi (yuan) has helped to limit Friday’s advance of the US dollar, as has some quite aggressive verbal intervention in support of the yen from Japanese officials,” said Chris Turner, global head of markets at ING.

European currencies regained some ground on Monday, after dropping last week as investors bought the US dollar on the basis that the Federal Reserve seems in no rush to ease rates compared to some of its peers.

The euro was last up 0.19 per cent at US$1.0828, climbing off a near three-week low. Sterling rose 0.31 per cent to US$1.264, having slid more than 1 per cent last week.

Bets for a June rate cut by the European Central Bank and the Bank of England (BOE) have risen substantially after the Swiss National Bank became the first major central bank to lower borrowing costs last week and BOE governor Andrew Bailey told the Financial Times that rate cuts “were in play” this year.

Elsewhere, the Australian dollar rose 0.31 per cent to US$0.6535.

Bitcoin climbed 5.4 per cent to US$66,900. It has fallen around 9 per cent since hitting a record high above US$73,800 on Mar 14. REUTERS