SINGAPORE : The dollar was tentative on Tuesday as it failed to get a meaningful boost from a rise in U.S. Treasury yields, though that kept pressure on the yen which languished near multi-decade lows and left traders on alert for any signs of intervention.
The greenback added 0.03 per cent to 151.88 yen, holding near a 34-year high of 151.975 yen hit last month as Japanese officials continued to ramp up their jawboning efforts in a bid to defend the currency.
Finance Minister Shunichi Suzuki said on Tuesday authorities would not rule out any options in dealing with excessive yen moves, repeating his warning that Tokyo is ready to act against the currency’s recent sharp declines.
The threat of intervention from Tokyo has kept the dollar from breaching the closely-watched 152 yen level, even as U.S. Treasury yields – which the dollar/yen pair tends to closely track – climb.
“USD/JPY will continue to move in a tight range from 151.0-152.5,” said Ryota Abe, an economist at SMBC.
He expects Japanese authorities to intervene in the currency market to “curb volatilities” in the event of a rapid move higher in the dollar/yen pair.
Also on Tuesday, Bank of Japan Governor Kazuo Ueda said the central bank must consider reducing the degree of monetary stimulus if trend inflation continues to accelerate.
In the broader market, the New Zealand dollar hit a more than two-week high of $0.6049, brushing off a private think tank survey that showed the country’s business confidence in the first quarter weakened as businesses faced a range of headwinds.
Sterling tacked on 0.03 per cent to $1.26575, while the euro steadied at $1.0857, holding near a two-week high.
The dollar was left languishing near a two-week trough against a basket of currencies at 104.15, failing to draw meaningful support from a rise in U.S. Treasury yields.
Treasury yields have climbed as traders pare back bets on the pace and scale of Federal Reserve rate cuts expected later this year, with the two-year yield hitting a more than four-month high of 4.8010 per cent on Tuesday.
The benchmark 10-year yield last stood at 4.4138 per cent.
Futures now point to roughly 60 basis points of easing priced in for the Fed this year, with markets growing increasingly doubtful of an easing cycle beginning in June.
U.S. inflation data due on Wednesday will be the main highlight of the week.
“It’s been a few days now, where we’re seeing an increasing disconnect between what’s happening in U.S. Treasuries, in particular an ongoing new year-to-date highs in Treasury yields, but the dollar is failing to respond to that,” said Ray Attrill, head of FX strategy at National Australia Bank.
“Fundamentally, our sense is that there are two things to note. One, we’re seeing increasing signs of improvement in the rest of the world outside the United States… and I think the strength that we’re seeing in commodity prices does seem to be symptomatic of – you could almost call it – a global reflation trade.”
Elsewhere, the Australian dollar gained 0.1 per cent to $0.6611, while the Chinese yuan eased slightly to 7.2341 per dollar.
While the yuan has steadied this week in part thanks to a recent run of upbeat Chinese economic data, the currency remains within a whisker of a 4-1/2 month low of 7.2364 it struck on April 3 despite the central bank’s firmer daily benchmark settings. It is down 1.8 per cent this year.
