On Monday, the value of the United States dollar rose to its highest levels against the Japanese yen in more than a year. This increase supports a decreased likelihood that the United States Federal Reserve will lower interest rates in the upcoming year.
Although markets continued to be vigilant for a potential intervention to prop up the Japanese currency, the Japanese authorities maintained an uncharacteristically calm demeanor as the yen continued its downward trend for the year, falling roughly 14%.
In addition, the markets processed the news late on Friday that Moody’s had cut its outlook for the United States’ credit rating to “negative” while focusing on the United States consumer price index scheduled to be released on Tuesday.
Last week, members of the Federal Reserve Board, including Chair Jerome Powell, hinted that the fight against inflation might not be finished yet. This caused the market to scale back its bets on a rate drop, which drove up short-term Treasury rates and bolstered the dollar’s value.
On Monday, the value of one dollar reached 151.85 yen, its highest point since October 2022. As of the most recent value, it has gained 0.2%, following a week in which it gained roughly 1.4%, marking its most considerable weekly rise versus the yen in three months.
“We’re in this pause where the dollar has peaked and the U.S. economy is slowing, but people are going to wait for confirmation,” said Societe Generale strategist Kit Juckes. “We’re in this pause where the dollar has peaked and the U.S. economy is slowing.”
“Given the move in U.S. Treasury bonds, of course the yen is not rallying yet,” he added, referring to the yields on U.S. bonds.
The dollar index, which measures the value of the greenback among other major currencies, was slightly more robust, around 105.80, and managed to keep most of its gains over the last week. According to Matt Simpson, senior market analyst at City Index, more Fed speakers are scheduled to appear this week in addition to the data. These speakers will probably echo Powell, leaving the door open for further rate rises.
“Even if we’re treated to a softer CPI print, the Fed is likely to continue to push back against hopes of rate cuts, as it’s not in their interest to even think about cutting rates, let alone mention it while inflation remains above target,” stated the economist.
Meanwhile, data from Japan on Monday revealed that wholesale inflation had dropped below 1% for the first time in just over two and a half years. This indicated that cost pressures driving up prices were starting to recede, which gave the yen very little support.
The value of one euro was about equivalent to one dollar, as it was trading at roughly $1.0693.
In other news, the pound remained unchanged at $1.2231 despite the release of data on U.K. average weekly wages on Tuesday and a CPI reading on Wednesday. This comes after data on GDP revealed that the economy did not increase during the previous week.