TOKYO: The dollar is set for its biggest weekly gain since mid-June, buoyed by the rise in oil prices, while the yen is poised for its largest weekly percentage decline in more than two months as the currency languishes at 40-year lows despite Japan’s pledges to buttress the currency.
Verbal efforts to support the yen have seen muted results, with Japan’s Finance Minister Satsuki Katayama once again reiterating the government’s readiness to take action in the foreign exchange market.
Some analysts see another intervention by Japanese officials as likely to have only a short-lived effect, similar to recent interventions in the currency, without coordinated steps such as a more aggressive path of rate hikes by the Bank of Japan (BoJ).
The US Treasury Department last Thursday joined calls for rate hikes by the BoJ, warning that excessive currency volatility was undesirable.
Markets have completely priced out any chance of a rate hike from the BoJ at its policy meeting this week, according to London Stock Exchange Group or LSEG data.
“It’s not surprising that dollar-yen has gone up under the conditions that we’re facing.
“It’s a low-yielding currency facing a terms-of-trade shock with higher oil prices,” said Thierry Wizman, global foreign exchange and rates strategist at Macquarie Group in New York.
“If there’s going to be a currency that the speculators are going to go after in those conditions, it’s going to be the yen,” Wizman said.
“So, that girds the whole thesis for why dollar-yen has been doing so well since the (Iran) war began, since oil prices went up.”
The war began on Feb 28. The dollar index, which measures the greenback against a basket of currencies, inched up 0.01% to 101.46 and was up approximately 0.7% last week, on track for its biggest weekly gain in five weeks.
Against the Japanese yen, the dollar weakened 0.02% to 163.81, but was up nearly 0.9% on the week, which would mark its strongest week against the currency since May 15.
Last Thursday, the dollar hit 163.98, its strongest against the yen since November 1986.
The dollar has been rising in recent days as renewed strikes in the Iran war have caused a reversal in oil prices and again fanned inflation fears, in turn buoying expectations the US Federal Reserve (Fed) may hike interest rates.
The US economy is seen as more insulated from energy price shocks compared with Europe and Japan, which has also supported the dollar.
US crude fell 3.47% to US$88.99 a barrel and Brent dropped to US$96.48 per barrel, down 4.12% on the day, with Brent retreating from the two-month high of US$102 hit last Thursday.
Expectations for a rate hike from the Fed at its meeting this week have increased to 35.8%, up from 12.8% a week ago, as cool US inflation data for June briefly supported hopes the Fed could delay rate hikes, but the escalating Iran war has rekindled concerns about price pressures. — Reuters
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