Yen Struggles Near 40-Year Low as US Dollar Pauses After Fed, Inflation Data
Market Movements and Economic Signals
By Gregor Stuart Hunter
Yen Performance Against the Dollar
SINGAPORE, June 26 (Reuters) - The yen tottered near its weakest level against the dollar in 40 years early in Asia on Friday as traders reined in bets for Federal Reserve rate hikes after U.S. inflation met forecasts and central bank officials sent mixed signals about the policy path ahead.
The Japanese currency was flat against the dollar at 161.82 yen, edging back from a two-year nadir of 161.95 on Thursday. Breaching the 161.96 mark would take it to its weakest level since 1986. The yen was little changed after data showed on Friday that core inflation in Tokyo accelerated in June in line with forecasts.
Dollar Index and Global Currencies
The dollar index, which measures the greenback's strength against a basket of six major peers, snapped a three-day winning streak on Thursday, edging back from its strongest level since May 2025. However, it is still on track for its first back-to-back weekly increase since the start of the Middle East conflict late in February.
Analyst Insights on Dollar Trends
"After a sharp rise in the wake of last week’s FOMC meeting, the dollar has dropped back a little today and may be due a pause in the very near term," analysts from Capital Economics wrote in a research report, referring to the Federal Open Market Committee.
"But we think that the emerging monetary policy divergence between the U.S. and Europe means that further gains for the greenback is on the cards for the second half of 2026."
U.S. Inflation and Fed Policy Outlook
U.S. inflation data released on Thursday showed cost-of-living pressures increased further in May. The Personal Consumption Expenditures price index, the Fed's preferred measure, rose 4.1% year-on-year as the Middle East conflict boosted energy prices, in line with economists' expectations.
Federal Reserve Officials’ Comments
Speakers from the U.S. central bank flagged divergent signals in the data.
Chicago Fed President's Perspective
Chicago Federal Reserve President Austan Goolsbee on Thursday said there was a "glimmer of hope" on services inflation, but underlying price pressures are still too high and trending the wrong way.
New York Fed President's Outlook
Meanwhile, Federal Reserve Bank of New York President John Williams said that while inflation pressures are likely to moderate this year they remain too high.
Market Expectations for Rate Hikes
The comments slightly tempered market hopes of an early rate hike. Fed funds futures are pricing an implied 69% probability of the U.S. central bank will hold interest rates at its next two-day meeting ending on July 29, compared to a 65.8% chance a day earlier, according to the CME Group's FedWatch tool.
Other Major Currencies and Cryptocurrencies
The euro was down 0.1% at $1.1361, while the British pound was steady at $1.3187.
The Australian dollar eased 0.2% to $0.6899, while its kiwi counterpart slipped 0.1% to $0.5646.
Bitcoin was up 0.7% at $59,801.31, while ether was 0.7% higher at $1,569.09.
(Reporting by Gregor Stuart HunterEditing by Shri Navaratnam)
