Dollar steady, yen frail after Fed comments dash rate cut wagers

Singapore, Apr. 17 (BNA): The dollar was broadly steady on Wednesday, keeping the yen rooted near 34-year lows after comments from Federal Reserve officials, including Chair Jerome Powell, suggested U.S. interest rates are likely to stay higher for longer.

Top U.S. central bank officials, including Powell, backed away on Tuesday from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer, dashing investor hopes for significant easing this year, Reuters reported.

The comments follow a slew of data in recent weeks that have underscored the strength of the U.S. economy along with persistent inflation.

The dollar was broadly steady, with the euro at $1.0621 on Wednesday, not far from the five-and-half-month low of $1.06013 it touched on Tuesday.

Against a basket of currencies, the dollar was last at 106.32, just shy of the five-month peak of 106.51 touched on Tuesday. The index is up 5% for the year.

Traders now anticipate 40 basis points of cuts in 2024, drastically lower than the 160 bps of easing they priced for at the start of the year.

The revival of the higher-for-longer narrative for U.S. rates has helped push yields higher, with the benchmark 10-year Treasury yields climbing to a five-month high of 4.696% on Tuesday. They were last at 4.661% on Wednesday.

The yen, which is extremely sensitive to U.S. yields, has been stuck at levels last seen in 1990, with the currency inching closer to the 155 per dollar level that traders worry might result in intervention by Japanese authorities.

On Wednesday, the yen was last at 154.63 per dollar, having touched the 34-year low of 154.79 in the previous session. The Japanese currency is down about 9% against the dollar this year.

Japan last intervened in the currency market in 2022, spending an estimated $60 billion to defend the yen.

The dollar’s strength has cast a shadow across the currency market, with emerging markets in Asia scrambling to stem the decline in their currencies, with the prospect of rate cuts this year in the region swiftly evaporating.

In other major currencies, sterling was last at $1.2425, but remained close to the five-month low of $1.24055 it touched on Tuesday.

The Australian dollar rose 0.16% to $0.6410 on the day, while the New Zealand dollar rose 0.37% to $0.5902, both pulling away from five-month lows touched on Tuesday.

Data showed New Zealand’s consumer prices rose in line with forecasts in the first quarter but domestically driven inflation remained surprisingly strong, prompting markets to push back the expected start of interest rate cuts.

AE