Karen Brettell
NEW YORK (Reuters) – The yen strengthened on Monday after Japan’s top currency diplomat warned against speculators trying to weaken the currency, while China’s yuan rose on suspicions of dollar sales by state-owned banks.
That helped lower the U.S. dollar against a basket of currencies after it hit a one-month high on Friday.
Masato Kanda, Japan’s deputy finance minister for international affairs, said the Japanese currency’s weakness did not reflect fundamentals, in the latest warning of a “big fall” for the currency against the dollar.
“It clearly alerts traders to signs of intervention,” said Carl Sciamotta, chief market strategist at Corpay in Toronto.
The dollar was last down 0.11% on the day at 151.26 Japanese yen, after hitting a four-month high of 151.86 on Friday. It is within reach of the 32-year low of 151.94 per dollar reached in October 2022.
Traders are watching the level around 152 for signs of possible intervention, although Sciamotta noted that the government may not intervene unless volatility also rises.
“Implied volatility continues to decline in most major currencies, so this is a favorable environment for carry trades – we should continue to see speculators borrowing in yen and other low-yielding currencies and investing in high-yielding emerging markets,” he said. adding that “this could continue to put downward pressure on the yen.”
The Japanese currency fell despite the Bank of Japan raising interest rates from negative territory last week.
rose 0.37% in the offshore market after falling to a four-month low on Friday, helped by suspicions of dollar selling by state-owned banks and strict official guidelines set by the country’s central bank.
The Chinese currency is under pressure from rising market expectations for further monetary easing to support the world’s second-largest economy.
It was last down 0.23% at 104.19 after hitting 104.49 on Friday, its highest level since Feb. 16.
Federal Reserve Chairman Jerome Powell said last week that the U.S. central bank is continuing to cut rates this year despite higher-than-expected inflation in January and February.
However, some Fed officials, including Atlanta Fed President Raphael Bostic, expressed concerns about persistent inflation and stronger-than-expected economic data. Bostic said Friday he now expects just one quarter-point interest rate cut this year instead of the two he had forecast.
The February Personal Consumer Expenditures (PCE) price index, due out Friday, will be the next major release that will provide further insight into Fed policy. The data comes as other markets, including stocks and bonds, are closed for the Good Friday holiday, which could lead to reduced foreign exchange trading volumes.
The euro was last up 0.27% at $1.0835. Sterling rose 0.36% to $1.2643.
Bets on 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 cut borrowing costs last week and Bank of England Governor Andrew Bailey told the Financial Times that rate cuts ” were in the game” this year.
Elsewhere, the Australian dollar rose 0.40% to $0.6540.
rose 6.9% to $67,923. It fell from a record high of $73,803.25 on March 14.