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Yen jumps on possible intervention, sterling hits one-year high
Global Banking & Finance Review®
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By Chuck Mikolajczak
NEW YORK (Reuters) -The yen rose sharply on Wednesday in a move that was suspected to be the result of another intervention from Japanese officials to buttress the long-battered currency from multi-decade lows.
The yen has posted several outsized moves in recent days, appreciating sharply on Thursday and Friday from 38-year lows of 161.96 per dollar, sudden rallies which market participants said had the signs of currency intervention.
Bank of Japan data released on Tuesday suggested Tokyo may have spent 2.14 trillion yen ($13.5 billion) intervening on Friday. Combined with the estimated amount spent on Thursday, Japan is suspected to have bought nearly 6 trillion yen via intervention last week.
“The fact that the move is bigger than it is elsewhere seems like it points to intervention of some sort, but the timing doesn’t really make sense, it seems to be coming out of the blue as opposed to triggered by a move in volatility or a move in the spot rate,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
Potentially we are in a situation in which traders are trigger-happy, given the fact that the Bank of Japan is looming in the background and that is exacerbating underlying moves. But as it stands it is hard to tell if there is actually any intervention going on here; we’re not seeing flow data that would suggest that it is intervention at this point.”
Market participants also cited comments from Republican Presidential nominee Donald Trump on the recent strength of the dollar in a Bloomberg interview published on Tuesday as a possible cause for weakness in the dollar.
Against the Japanese yen, the dollar weakened 1.12% at 156.56 after falling to as low as 156.09, a level not seen since June 12.
Japan’s Ministry of Finance did not respond to requests for comment. Japan’s top currency diplomat Masato Kanda said he would have to respond if speculators caused excessive moves and that there was no limit to how often authorities could intervene, Kyodo News reported.
The dollar index, which measures the greenback against a basket of currencies, was also weaker on the day, down 0.38% at 103.80 as comments from several Federal Reserve officials indicated the central bank was getting closer to cutting interest rates.
While markets only see a slim chance for a rate cut of at least 25 basis points (bps) at the Fed’s July meeting, they are pricing in a 96.2% chance for September, according to CME’s FedWatch Tool.
The euro was up 0.32% at $1.0932 ahead of a policy meeting from the European Central Bank (ECB) on Thursday, in which it is widely expected to keep rates steady.
Sterling strengthened 0.39% to $1.3016 and hit a one-year high against the dollar of $1.3044 on data that showed UK inflation rose slightly more than expected, dampening chances for a rate cut from the Bank of England at its upcoming meeting.
Headline inflation held at 2% on an annual basis in June against forecasts for a 1.9% increase, while closely watched services inflation came in at 5.7%.
(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci)
Currency intervention refers to actions taken by a country's central bank to influence the value of its currency in the foreign exchange market, often to stabilize or increase its value.
Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power.
Central banks manage a country's currency, money supply, and interest rates, aiming to maintain economic stability and control inflation.
The foreign exchange market is a global decentralized marketplace for trading national currencies against one another, facilitating international trade and investment.
Economic growth is the increase in the production of goods and services in an economy over a period, typically measured by the rise in Gross Domestic Product (GDP).
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