Dollar Edges Lower While Yen Falls into Intervention Territory
The U.S. dollar edged lower in early European trade on Thursday, giving back some of the gains from the previous session, while the Japanese yen fell into a range that suggests potential intervention.
As of 04:30 ET (08:30 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, traded 0.1% lower at 105.650.
Dollar Slips Ahead of Presidential Debate
After gaining around 0.4% in the previous session and nearing two-month highs, the dollar slipped back on Thursday. U.S. Federal Reserve Governor Michelle Bowman reiterated on Wednesday that “inflation will decline further with the policy rate held steady” and that rate cuts will “eventually” be appropriate if inflation moves sustainably toward 2%.
Fed officials have consistently called for more data showing inflation is retreating before agreeing to interest rate cuts, putting Friday’s PCE price index data in the spotlight. This is the central bank’s preferred inflation gauge and will show whether the slowdown in inflation is continuing.
Additionally, the first presidential debate between Joe Biden and Donald Trump, ahead of their election rematch in November, is of interest.
“Our baseline assumption is that Trump is the most dollar-positive candidate due to protectionism pledges, geopolitical stance, and plans for lower taxes, but markets have not had a real chance to trade on the back of US political news as monetary policy dominated,” analysts at ING said in a note. “Any FX action based on the perceived winner of the debate can help us calibrate the coefficients for November’s market reaction function.”
Euro “Unappealing” Ahead of French Election
EUR/USD rose 0.1% to 1.0688, rebounding slightly after trading as low as 1.0666 on Wednesday. The upcoming French elections and the political turmoil in France following President Emmanuel Macron’s surprise snap election announcement have weighed on the euro.
“The euro remains unappealing before clarity on the French vote (which may not come before the July 7 second-round results),” ING added. “The next key levels are 1.0650 and 1.0600 for EUR/USD. These may be reached following moves after the US debate overnight, although we expect a US core PCE at 0.1% month-on-month tomorrow to send EUR/USD into the weekend closer to 1.0700 than 1.0600.”
GBP/USD rose 0.1% to 1.2631, with sterling trading in a tight range ahead of next week’s general election. The currency’s future largely depends on the next government convincing investors that its plans to fix a stagnant economy are credible.
Yen Weak Despite Warnings
In Asia, USD/JPY traded 0.1% lower at 160.59 after the yen touched its weakest level against the dollar since December 1986 on Wednesday. The Japanese currency continued to face pressure despite repeated warnings from Japanese officials about possible intervention due to excessive volatility.
Japan’s top currency diplomat, Masato Kanda, stated that authorities were “seriously concerned and on high alert” about the yen’s rapid decline. “Having already spent $61 billion on official FX intervention and USD/JPY moving back to 160 (and over) in less than two months before the first operation, the Minister of Finance’s moves must be weighed carefully,” ING added. “What has been clear is that FX interventions are a temporary measure to curb volatility, not a solution to a structurally oversold currency.”
USD/CNY edged marginally higher to 7.2689, hovering at a seven-month high on Thursday, following a seventh consecutive weak midpoint fix by the People’s Bank of China.
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