(Reuters) — The dollar fell on Thursday after data showed consumer prices unexpectedly fell in June, while a sharp rise in the Japanese yen sparked speculation about possible currency intervention.
The yen rose more than 2% at one point after falling to a 38-year low against the greenback last week.
Japanese local TV channel Asahi, citing government sources, said authorities had intervened.
The state-run Jiji news agency quoted monetary diplomat Masato Kanda as saying he could not comment on whether there had been intervention, but that recent yen moves were “not in line with fundamentals.”
It will not be known for sure whether intervention took place until the Japanese Finance Ministry releases its updated intervention figures at the end of the month.
Analysts noted that the move was likely due to a significant repositioning after the U.S. consumer price index (CPI) fell on Thursday. A September rate cut by the U.S. Federal Reserve is now seen as more certain, which will reduce the appeal of long-term dollar/yen trades.
Long dollar/yen positioning and momentum indicators were also put under strain ahead of the data release, with many traders caught on the wrong side of the move.
“I think it was just a reaction to the weakness in the US CPI and the squeeze on the market’s long positioning on the dollar. The dollar weakened across the board, but particularly against the yen because of the positioning,” said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America Global Research in London.
Buying the dollar and selling the yen has become popular because of the large interest rate differential between the two countries.
“A lot of this can be attributed to some loosening as people rushed into this carry trade,” said Michael Boutros, senior technical strategist at FOREX.com in New York.
The dollar index was down 0.49 percent at 104.45 and had earlier hit 104.07, the lowest since June 7.
Against the yen, the dollar fell 1.81% to 158.75 after reaching 157.4, its lowest level since June 17. It had reached 161.76 earlier on Thursday.
Boutros noted that the dollar has reached a key technical support zone against the yen and will need to stay above it to maintain the dollar’s upward trend in place since December.
Thursday’s consumer price data comes after Fed Chairman Jerome Powell said this week he was not ready to conclude that inflation was falling sustainably to 2%, although he had “some confidence in that point.”
Unexpected inflation in the first quarter has raised concerns that it may take longer than expected for prices to fall.
Some also worry that it will be harder for inflation to continue to fall compared to 2023, after the improvement recorded in the second half of last year.
“The question was whether we could match or beat it to maintain the year-over-year disinflation trajectory,” said Steve Englander, head of global G10 currency research and North American macroeconomic strategy at Standard Chartered Bank’s New York branch, but “it was a pretty decisive improvement.”
The euro rose 0.34% to $1.0867 and hit $1.090, its highest level since June 7.
The pound hit its highest level in almost a year as comments from Bank of England officials and better-than-expected GDP data led traders to reduce bets on an August rate cut in Britain.
BoE chief economist Huw Pill said on Wednesday that price pressures remained persistent and data on Thursday showed UK economic output rose 0.4% in May, above expectations.
The pound rose 0.51% to $1.2911 and hit $1.2947, the highest since July 27, 2023.
In cryptocurrencies, bitcoin gained 0.72% to $57,821.
News Source : asia.nikkei.com
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