Yen firms after landmark intervention, dollar near lows on optimism over Iran talks
Market Reactions and Currency Movements
By Amanda Cooper and Chibuike Oguh
NEW YORK/LONDON, Aug 5 (Reuters) - The Japanese yen steadied on Wednesday after a historic intervention, while the dollar hovered near six-week lows against major peers as renewed hopes for an end to the Iran war curbed safe-haven demand.
Yen Performance Following Intervention
The yen was slightly stronger on the day at 157.72 per dollar after falling 0.4% on Tuesday. It had strengthened on Monday to 155.2 per dollar after trading around 164, its weakest in 40 years, just a week earlier.
Support from U.S. Treasury and Central Banks
U.S. Treasury Secretary Scott Bessent said on Tuesday that the U.S. would do "whatever it takes" to support Japan's efforts to stabilize the yen, echoing former European Central Bank President Mario Draghi, who in 2012 pledged the same to preserve the euro during a regional debt crisis.
"I don't think the central banks are really defending a fixed level but the market is still going to challenge the central bank's resolve," said Marc Chandler, chief market strategist at Bannockburn Capital Markets.
"I think we're waiting for some fundamental justification to do so and we can get that in the next several days when we get the jobs data on Friday."
Upcoming U.S. Jobs Data and Fed Policy
As for macro events, the U.S. monthly employment report on Friday could help to shape expectations for near-term Fed policy.
Intervention Fallout and Market Skepticism
INTERVENTION FALLOUT
The dollar hit its lowest against the Japanese currency in three months after joint purchases on Friday by Tokyo and Washington — the first yen-buying intervention by U.S. authorities since 1998 — and fell further on Monday.
Since then, it has strengthened against the yen, suggesting that investors are skeptical about how effective intervention can be in the longer run.
"The phrase 'sticking plaster' does feel relatively appropriate in many instances. The reality is, I think it is nothing more than a containment exercise, unless you get one of three criteria," CIBC Capital Markets head of G10 FX strategy Jeremy Stretch said.
Criteria for Effective Intervention
Those three, he said, would be a more aggressive approach to rate hikes from the Bank of Japan, markets pricing in a lower chance of rate increases from the Federal Reserve, and a lower oil price.
Bessent told public broadcaster NHK that he was sure Bank of Japan Governor Kazuo Ueda will "do what is best" for his country's economy, heightening market expectations that the BOJ could raise rates at its next policy meeting on September 17 and 18.
"We think the risk of further intervention remains elevated, but the bar for another move is probably higher unless we see a fresh bout of disorderly yen weakness," Joel Kruger, markets strategist at LMAX Group, said in a note. "Intervention can help slow the pace of depreciation, but history suggests it rarely changes the longer-term trend unless the underlying fundamentals shift."
Dollar Eases Amid Oil Price and Iran Optimism
DOLLAR EASES
The dollar index, which tracks the U.S. currency against six others, was 0.16% lower at 99.70 after hitting a six-week low on Monday. With the oil price back around $80 a barrel and U.S. President Donald Trump saying his administration had "very good discussions" with Iran, investors had less incentive to buy the dollar as a safe haven.
Impact of Oil Prices and Fed Rate Expectations
Lower oil prices also prompted traders to attach a lower chance of the Federal Reserve raising interest rates in September, which acted as a drag on the dollar. That probability was just below 60% on Wednesday, from closer to 70% at the start of the week.
Kansas City Fed President Jeff Schmid said on Tuesday that some monetary policy tightening was needed to bring "too high" inflation back to the Fed's 2% target.
Performance of Other Major Currencies
The euro rose 0.17% to $1.1552, while the pound edged up 0.09% to $1.3465.
(Reporting by Chibuike Oguh; Additional reporting by Jiaxing Li and Summer Zhen in Hong Kong; Editing by Barbara Lewis and Andrea Ricci)
