Published by Jessica Weisman-Pitts
Posted on October 24, 2022
By Amanda Cooper
LONDON (Reuters) -The dollar rallied on Monday, shaking off another blast of suspected Japanese intervention and sending China’s offshore yuan to record lows, while the pound dithered as Britain’s Conservative party raced to choose its third leader this year.
The yen hit a low of 149.70 per dollar overnight before being swept to a high of 145.28 within minutes in a move that suggested the Bank of Japan, acting for Japan’s Ministry of Finance (MOF), had stepped in for a second day. The yen was last at 149.05, down 0.9% on the day against the greenback.
“As with the prior round of intervention when dollar/yen was bid up above 145.00, it seems the half-life of the impact from intervention is very short indeed,” Saxo Bank head of currency strategy John Hardy said.
Yen overnight volatility surged to its highest since Sept. 21, the day before the BOJ stepped in to prop up the currency for the first time since 1998.
Japan likely spent a record 5.4 trillion-5.5 trillion yen ($36.16 billion-$36.83 billion) in its yen-buying intervention last Friday, according to estimates by Tokyo money market brokerage firms.
Traders also suspect the BOJ has intervened more than once in the past month to shore up a currency that has tumbled 22% this year against the dollar.
The Japanese government has committed to keeping borrowing costs ultra low, meaning the BOJ is also intervening in bond markets to keep yields under control.
“Clearly, the market does not see the current framework as sustainable and every day last week the BoJ had to step in with special bond buying operations to keep the 10-year government bond at 25 basis points. Japan’s 10-year swaps trade at 65.5 basis points, and this tells a fitting picture,” Pepperstone strategist Chris Weston said.
The dollar held firm in the face of a report on Friday from the Wall Street Journal that said Federal Reserve officials will likely debate the size of future interest rate hikes, which in turn kept Treasury yields from drifting higher.
The euro was last down 0.1% at $0.9851, while China’s offshore yuan plummeted to a new record low against the dollar of 7.3227.
Chinese premier Xi Jinping secured a precedent-breaking third leadership term, picking a top governing body stacked with loyalists. Xi is likely to stick to his zero-COVID policy and could favour the state over private sector growth, analysts say.
U.S.-listed shares of China firms slumped in premarket trading on Monday and Hong Kong shares staged their biggest one-day fall in 14 years.
Sterling see-sawed on news former prime minister Boris Johnson had dropped out of the Tory leadership contest, and was last flat at $1.1302, off an overnight high above $1.14.
Former Chancellor Rishi Sunak has emerged as the clear frontrunner to become Britain’s next prime minister.
“Sterling price action seems to assume the advent of a Sunak/Hunt ticket as PM/Chancellor and a focus on trying to restore some of the UK’s lost fiscal credibility,” ING strategist Chris Turner said.
“After the failed experiment with Trussonomics, the challenge facing the new team will be harder than the one that existed earlier this summer and probably a reason why international investors will not want to chase GBP/USD above the 1.15 level,” he added.
(Additional reporting by Vidya Ranganathan and Kevin Buckland in Singpoare and Stella Qiu and Wayne Cole in Sydney; Editing by Bernadette Baum, Kirsten Donovan)
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