US dollar rebuffed from 150 level vs yen after Powell/Treasuries double-whammy

THE US dollar briefly touched the closely watched 150 level against the yen on Friday (Oct 20), encouraged by a rise in US 10-year Treasury yields towards 5 per cent after Federal Reserve chair Jerome Powell suggested there was scope for more interest rate rises.

The yield on the benchmark 10-year Treasury, which nudged at 5 per cent for the first time in 16 years overnight, has risen by 30 basis points this week – marking its biggest weekly rise since April 2022.

War in the Middle East has sparked a push into safe-haven assets such as gold and the Swiss franc, but trading in Treasuries has been dominated by the rate outlook.

Yet this has not translated into a similar boost to the US dollar this week, which made only marginal gains while toying with the 150 level against the yen. This number marks the point at which many market participants believe Japan’s Ministry of Finance (MOF) could step in to shore up the currency.

“There is a sense that the market is obviously very mindful that the 150 threshold that we’re close to again this morning is a potential precursor for the uncertainty of having the MOF on the other side of it,” Jeremy Stretch, head of G10 currency strategy at CIBC Capital Markets, said.

“The other factor is we are still in a situation where we’ve seen the market remain relatively long of US dollars anyway, that resumption of adding to those US dollar positions is a tough ask,” Stretch said.

Speculators have almost doubled their bullish US dollar positions against other G10 currencies this month to the most in a year.

Meanwhile, the US dollar/yen pair, which on Friday rose by as much as 0.14 per cent to 150.00 and was later up 0.1 per cent at 149.935, tends to track 10-year US yields.

“There is a mindset that the Ministry of Finance will intervene at 150, and that belief has become really sticky,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo.

“But if that sticky belief breaks, that’s going to be interesting. There is room for a big move up in US dollar-yen, and it could go quickly,” Omori said, adding the next key point would be 155 per US dollar, the highest since mid-1990.

Powell punch

In a eagerly awaited speech on Thursday, Fed chair Powell said the strength of the US economy and continued tight labour markets could require still tougher borrowing conditions to control inflation, though he added rising market interest rates could reduce the need for the central bank to act.

“The market seems to be more comfortable with the view that the Fed is going to pause, or at least pass on a rate rise out of the Oct 31-Nov 1 meeting,” said Ray Attrill, head of FX strategy at National Australia Bank.

“Obviously, he’s still not shutting the door to the prospect of higher rates, but there were a few words in Powell’s (speech) that I do think represent a little bit of a softening in the tone.”

Money markets show traders fully expect to see no change in rates at the Fed’s next policy meeting.

But the chances of a rate cut in the first half of next year are fading fast, according to a recent Reuters poll.

Elsewhere, the pound fell as much as 0.37 per cent to two-week low after a series of data releases showed a collapse in British consumer confidence in October following weak retail sales the month before.

Sterling was flat at US$1.2143, holding just above two-week low.

The euro edged up 0.15 per cent to US$1.0597, while the Swiss franc, which has caught a bid from safe-haven flows, headed for its largest weekly gain versus the US dollar in three months, having risen 1 per cent.

The Swissie on Friday also hit its highest against the euro since 2015, when the Swiss National Bank scrapped its peg between the two currencies. The Swiss franc was last a touch lower against the euro at 0.944.

In Asia, the Chinese yuan was mostly steady on the offshore market at 7.3323 per US dollar, after China kept its benchmark lending rates unchanged at the monthly fixing on Friday, matching market expectations.

“I do expect some more monetary easing going forward, specifically before year end,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“Even though we got that stronger-than-expected data dump and GDP earlier in the week, I think underneath the surface, the Chinese economy is still pretty fragile.” REUTERS