US dollar rises to five-month high, puts heat on yen

THE US dollar touched five-month highs against the pound and euro on Tuesday (Apr 16), a day after hotter-than-expected US retail sales sent Treasury yields higher, raising worries of an intervention from Tokyo as the yen languished at its lowest since 1990.

Data on Monday showed US retail sales rose 0.7 per cent last month, compared with a 0.3 per cent rise that economists polled by Reuters had forecast, reinforcing expectations that the Federal Reserve will not be in a rush to cut interest rates this year.

“The US economy continues to grow very solidly at a level which is above the long-term trend and which does support higher US bond yields and which argues against the Fed cutting interest rates,” said Kenneth Broux, head of corporate research, FX and Rates at Societe Generale.

Markets are now pricing in a 41 per cent chance of the Fed cutting rates in July, compared with around 50 per cent before the data, according to CME FedWatch tool.

Investors will be watching for clues from Federal Reserve chair Jerome Powell, who is due to speak later on Tuesday, his first comments since US inflation data last week came in hotter than expected.

The euro was up a touch to US$1.0626, but still hovering near Nov 2 lows, under pressure after the European Central Bank last week signalled a rate cut in June.

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Sterling was also marginally up to US$1.2449, having earlier hit a five-month low of US$1.2409, as traders digested data that showed British core wage growth posted its weakest rise since the three months to September 2022 but remained strong by historical standards.

That helped the dollar index rise 0.04 per cent to 106.23, having hit its highest since Nov 2, in morning European trading.

The yen last hovered around 154.64 per dollar, its weakest level in 34 years, and close to what analysts say is the new resistance level of 155.

That kept traders on high alert for yen-buying intervention from Japanese authorities. With hedge funds building up their largest bets against the currency in 17 years, a rebound in the yen could trigger a significant rally.

In Tokyo, Japanese Finance Minister Shunichi Suzuki said on Tuesday he was closely watching currency moves and will take a “thorough response as needed”.

Though intervention, even if it comes, will not be a long term solution, say some.

“Intervention can only work today to slow or manage the pace of depreciation, but cannot turn a trend. And it’s actually very costly,” Broux said.

“The big challenge for a number of these Asian currencies, is that as long as US bond yields keep grinding higher, you’re not going to get a lot of success because you’re fighting a wider yield spread.”

The US benchmark 10 year yield was last 4.653 per cent, just off the previous day’s five-month high. Japan’s 10 year yield was last 0.873 per cent.

Other currencies in emerging Asia were also at multi-year or multi-month lows.

The Chinese yuan edged marginally lower even after GDP data for China’s first quarter beat expectations in a boost for policymakers trying to shore up confidence in the face of a protracted property crisis.

The onshore yuan fell to 7.2422 per dollar its weakest since November, before picking up after the data, and was last 7.2388 per dollar. In the offshore market, the dollar was up 0.1 per cent at 7.2680 yuan.

The Australian dollar dropped 0.45 per cent to US$0.6414, having touched its lowest since Nov 14. REUTERS